July 7, 2015

SEC Stops Ponzi Scam that Targeted Portuguese and Spanish Communities

The Securities and Exchange Commission is filing fraud charges against DFRF Enterprises for running a Ponzi scheme and pyramid scam that targeted investors belonging to Portuguese and Spanish-speaking communities. According to the regulator, the company claimed to run over 50 gold mines in Africa and Brazil even though its revenues came solely from selling membership interests to investors.

The alleged scammers raised over $15 million, bilking at least 1,400 investors. The owner of DFRF, Daniel Fernandes Rojo Filho, allegedly took over $6 million of this money to pay for personal expenses, including luxury vehicles and other lavish spending.

The regulator contends that in 2014, Filho and others started selling memberships in DFRF. Investors were recruited through a pyramid-like scam, with commissions paid to earlier investors for recruiting new members, much like a Ponzi scheme.

Many of these sales took place through meetings with prospective investors in hotel conference rooms, businesses, and homes, mostly in Massachusetts. The investment opportunity was also promoted on video through the Internet. In less than a year, membership sales rose from under $100,000 in June 2014 to over $4 million for the month of March 2015.

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July 2, 2015

SEC Appeals Its In-House Agency Judge’s Decision to Throw Out Charges Against Financial Advisers Paid by Fidelity to Push Specific Mutual Funds

Securities and Exchange Commission employees are appealing a ruling by an administrative law judge dismissing charges against two financial advisers accused of not notifying clients that Fidelity Investments (FNF) had paid them to sell specific mutual funds. In the Texas securities case, SEC Administrative Law Judge James E. Grimes rejected claims that The Robare Group and two of its owners violated the law by failing to adequately disclose that they had a financial relationship with the brokerage firm. Grimes said that from listening to Mark L. Robare and his son-in-law Jack L. Jones Jr. testify, he was hard pressed to imagine them attempting to bilk anyone. This is one of the few cases presided over by one of its judges that the SEC has lost.

Fidelity is The Robare Group's custodian. For the last 11 years, the registered investment advisor has been part of a program in which Fidelity pays it a portion of the revenue earned from the sale of certain third-party mutual funds. The payment goes to the adviser who made the mutual fund sale happen.

Advisors are given access to the funds without any transaction fees. As the custodian, Fidelity refers to payments made to advisers not as commission but as compensation for shareholder administrative fees.

In their appeal, the SEC staffers said that they feared Grimes’ ruling in this case establishes a troubling precedent that shifts the burden of full disclosure of a conflict interest from an investment adviser to a compliance consultant. They said this could allow an investment adviser to be excused from certain securities violations as long as he has a compliance consultant that has not “affirmatively” objected to a “particular disclosure.”

Continue reading "SEC Appeals Its In-House Agency Judge’s Decision to Throw Out Charges Against Financial Advisers Paid by Fidelity to Push Specific Mutual Funds" »

June 24, 2015

SEC Charges Unregistered Brokers for Handling Over $79M of Investments in Immigrant Investor Program

The SEC is charging Ireeco LLC and Ireeco Limited with serving as unregistered brokers for over 150 foreign investors. The two firms are accused of illegally brokering over $79M of investments by those who wanted to become U.S. residents under the EB-5 Immigrant Investor Program.

The program offers a way for foreigners to invest money in a U.S. enterprise or a designated, private regional center in exchange for legal residency in this country. The SEC contends that the two brokerage firms went online to solicit foreign investors, promising to help them select a regional center. Instead, the firms allegedly directed most of them to the centers that paid commissions of approximately $35,000/investor once the U.S. Citizenship and Immigration Services (USCIS) approved a green card petition. The SEC said that participants invested $79 million in the regional centers.

The SEC said that Ireeco LLC and Ireeco Ltd. raised money for immigrant investment projects without being registered to legally operate as securities brokers. The two firms agreed to settle without denying or admitting to the findings.

Continue reading "SEC Charges Unregistered Brokers for Handling Over $79M of Investments in Immigrant Investor Program" »

June 20, 2015

SEC Accuses Chicago Underwriters of Municipal Bond Offerings Fraud

The SEC has filed enforcement actions against 36 municipal underwriting firms, most of them located in the Chicago area, for alleged violations involving municipal bond offerings. These are the first cases against underwriters brought under the Municipalities Continuing Disclosure Cooperation Initiative. Goldman Sachs & Co. (GS), Robert W. Baird & Co., J.P. Morgan Securities (JPM), Raymond James & Associates, Inc. (RJF), Morgan Stanley & Co. (MS), Citigroup Global Markets Inc. (C), Stifel, Nicolaus & Company, Inc. (SF), Piper Jaffray & Co. (PJC), Merrill Lynch, Pierce, Fenner & Smith Inc., and RBC Capital Markets, LLC were the firms ordered to pay the largest financial penalty of $500,000, respectively.

The program offers favorable settlement terms to municipal bond issuers and underwriters that voluntarily self-report violations to securities laws, including those involving omissions and material misstatements in muni bond offering documents. In these actions, the SEC contends that between ’10 and ’14, the firms violated federal securities law when they sold muni bonds.

These acts purportedly included using offering documents that omitted or included materially false statements regarding the bond issuers’ compliance with continuing disclosure duties. The firms also are accused of not doing a good enough job of detecting omissions and misstatements before making bond sales to customers.

Continuing disclosure allows muni bond investors to have access to annual financial reports and other data on a continual basis. The SEC said that the issuers’ failure to comply with the duties related to continuing disclosure posed a challenge to investors wanting that information.

Continue reading "SEC Accuses Chicago Underwriters of Municipal Bond Offerings Fraud" »

June 17, 2015

SEC File Action Against Company Accused of Offering Security-Based Swaps to Retail Investors

The Securities and Exchange Commission said it has brought an enforcement action against Sand Hill Exchange for illegally offering complex derivative products to retail investors. The regulator said that the company, based in in Silicon Valley, was offering and selling security-based swaps contracts to investors who did not qualify as “eligible contract participants” (ECPs) according to the law.

Sand Hill Exchange was started as an online business not unlike a fantasy sports league. It dealt with the valuation of private start up companies in the area. However, its founders Elaine Ou and Gerrit Hall ended up revising the company business model numerous times, with Sand Hill eventually inviting people to use real funds to purchase and sell contracts referencing companies that have not yet had their initial public offering.

To fund accounts, Sand Hill solicited investors to use dollars or bitcoins. Users, however, were not asked about their financial holdings nor were offerings restricted to those who held a certain number of assets. Instead, anyone could qualify.

It was the Dodd-Frank Act that put into place two integral requirements for security-based swaps offered or sold to retail investors who fail to meet the eligible contract participant standards. First, there has to be a registration statement for the offering, and second, the contracts must be sold on a national securities exchange. The requirements give the retail investors full access to key information about the offering while limiting such transactions to platforms that are only subject to the highest regulatory scrutiny.

Continue reading "SEC File Action Against Company Accused of Offering Security-Based Swaps to Retail Investors " »

June 1, 2015

Sage Advisory Group Must Pay Over $1M for Two Securities Fraud Cases

The United States District Court for the District of Massachusetts has ordered Sage Advisory Group and principal Benjamin Lee Grant (“Lee Grant”) to pay over $1M for two SEC fraud cases. The ruling comes after a federal jury found both of them liable.

In the first case, the regulator is accusing Lee Grant of using allegedly false and misleading statements to fraudulently persuade brokerage customers to move their assets to Sage, which was the firm he was starting in 2005. He purportedly told clients that the 2% wrap fee they would have to pay Sage for transaction, management, and advisory services would not cost as much in the long run as the 1% fee and trading commissions that his former employer, brokerage firm Wedbush Morgan Securities, charged them.

The SEC said that Lee Grant claimed it was First Wilshire Securities Management Inc. that was recommending that clients move their assets to Sage with him. Wilshire Securities Management was the investment adviser managing the assets of these clients at Wedbush. The regulator contends, however, that First Wilshire Securities never made such a recommendation.

Continue reading "Sage Advisory Group Must Pay Over $1M for Two Securities Fraud Cases" »

May 29, 2015

Ex-Trident Partners Compliance Director Faces SEC Charges for Allegedly Defrauding Investors And Stealing Broker-Dealer Assets

The U.S. Securities and Exchange Commission’s Enforcement Division has filed fraud charges against William Quigley, the former compliance director of Trident Partners Ltd. According to the regulator, Quigley solicited investors to purchase stock in start-ups that were supposedly about to go public, as well as well-known companies, but never actually bought the investments. Instead, he put their money in brokerage and bank accounts in the Philippines or used ATM machines to take out the funds.

Quigley is accused of working with two brothers in the Philippines. He and his co-conspirators allegedly transferred over $500,000 of investor funds to the accounts in that country.

The SEC claims that Quigley set up three brokerage accounts, including a secret account at Trident Partners, to conduct the scam. As compliance director, he was supposed to open and correctly route incoming correspondence and wires and report suspect transfers. Instead, he stole commission checks written to the brokerage firm and put the money in outside accounts.

The Enforcement Division is charging Quigley with federal securities laws antifraud provisions violations, as well as causing, aiding, and abetting violations of these provisions. He also is charged with aiding, abetting, and causing Trident’s violations of federal securities laws, which require firms to report transactions involving illicit activities.

Meantime, the U.S. Attorney’s Office for the Eastern District of New York has filed a parallel action against Quigley. In a two-count indictment, he was charged with conspiracy to commit wire fraud and money laundering. A release issued by the attorney’s office said that instead of using his training to protect overseas investors who were told that their money would go into reputable funds and companies, Quigley and others stole the money for personal use.

Quigley and the co-conspirators are accused of misrepresenting themselves and pretending to be registered broker-dealers.

Our stockbroker fraud law firm helps investors recoup their losses in arbitration and in court.

SEC Announces Charges Against Compliance Director Accused of Defrauding Investors and Stealing Brokerage Firm Assets, SEC, May 28, 2015

SEC Order (PDF)


May 26, 2015

Massachusetts Securities Regulator Sues the SEC Over New Rules Affecting Small Company Stock Offerings

William Galvin, the securities regulator of Massachusetts, is suing the U.S. Securities and Exchange Commission. Galvin is seeking to stop new rules that he believes restricts state oversight of stock offerings made by emerging and small companies.

With the newly adopted rules, offerings starting at $20 million would only need to be filed with the SEC and not the states. With smaller deals, companies can opt for state-level assessment—or not, and contend with stricter disclosure requirements.

State regulators have long felt that the new rules pre-empt their oversight of a market at which they are the ones who can do the best job at overseeing. These SEC rules are not specific about who or what would qualify as the kind of investor that could buy these offerings. Because no salary restrictions or net worth is imposed, local businesses could easily target retail investors.

Also at issue are the new rules for raising capital that are mandatory under the 2012 Jumpstart Our Business Startups Act. The rules let companies raise up to $50 million from members of the public. As Galvin argued,with no specific qualification guidelines, everyone can be a “qualified” buyer, in which case the states should definitely play a role in oversight.

Massachusetts is not the only state suing over these issues. Another plaintiff, with its own securities lawsuit is the state of Montana. Galvin, speaking to Reuters, said that the two states want a U.S. appeals court to review the rules. The states claim that that the SEC violated congressional intent when opting to significantly lessen the states’ power to look at deals before they are sold to the public.

At Shepherd Smith Edwards and Kantas, LTD LLP, our job is to help investors of securities fraud recoup their investment losses. Over the years, we have helped thousands of investors get their money back.

Massachusetts securities regulator William Galvin sues SEC over small-company offerings, Investment News, May 26, 2015

Regulation A Amendments (PDF)

Jumpstart Our Business Startups Act (PDF)


More Blog Posts:
Investment Opportunities to Get More Advertising Exposure Because of JOBS Act Mandate Lifting Ban on General Solicitation, Stockbroker Fraud Blog, January 29, 2013

Gray Financial is Charged with Bilking Georgia Pension Funds, Institutional Investor Securities Blog, May 21, 2015

May 22, 2015

Nationwide to Pay $8M Over Variable Annuity Pricing Violations

Nationwide Life Insurance Co. has ben ordered to pay an $8 million penalty to the U.S. Securities and Exchange Commission for purposely delaying variable annuity and life insurance policy orders and that this led to company’s failure to price these orders in a timely manner.

From 1995 to 2011 clients placed thousands of orders to Nationwide for variable insurance contracts and underlying mutual funds through First Class mail at an Ohio post office box. However, even though the majority of the mail was ready for Nationwide to pick up early in the morning, the company’s couriers were purportedly told to not collect the mail until after 4pm.

The SEC said that this violates the Investment Company Act of 1940’s Rule 22c-1, which mandates that a company price orders made prior to 4p at that day’s price while orders after 4 pm are to be priced at the next day’s price. The insurer is accused of going to the post office and stressing the need for variable contract mail to be delivered late. Certain couriers even purposely delayed when they’d arrive at the carrier’s home office by stopping to purchase food or get gas. Meantime, said the SEC, Nationwide managed to pick up and deliver mail for other its business units without such delays.

Our variable annuity fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are committed to the financial recovery of our clients. Contact us today.

Read the SEC Order (PDF)

Variable Annuities: What You Should Know, SEC.gov


More Blog Posts:
Nomura & Royal Bank of Scotland Must Pay $806M in Mortgage-Backed Securities Case, Institutional Investor Securities Blog, May 18, 2015
Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

May 7, 2015

Florida Microcap Co. Accused of Bilking Over 400 Investors of More than $11M

The Securities and Exchange Commission is suing eCareer Holdings Inc. and its executives for fraud. According to the regulator, the online staffing company bilked over 400 investors of $11 million when it miserpresented the company and sold shares that were unregistered. Also accused of fraud are three boiler room brokers who tried to conceal that they were barred from the industry.

According to the SEC's microcap fraud case, investors were bilked in cold calls that were made through a boiler room run by Frederick Birks, Dean A. Esposito, and Joseph DeVito. The three of them and their sales agents were hired by eCareer CEO Joseph J. Azzata.

Investors were told their funds would go toward working capital to develop the company’s online job staffing business. Instead, approximately 30% of their money went toward outrageous fees to the agents and brokers.

The financial scam purportedly began in August 2010. Also, Azzata is accused of diverting $650,000 to cover his own expenses.

In corporate filings the payments were wrongly characterized as having been paid to third parties for advisory and consulting services. The filings and offering materials misrepresented that eCareer shares would only be sold to investors who were accredited. In truth, the stock was promoted and sold to people, including very elderly seniors, who did not fit the criteria for investors that are “accredited.”

Also, the three brokers were already barred from acting as a dealer or broker or taking part in any kind of penny stock offering. This means they were not allowed to make money from selling eCareer stock.

It was in 2008 that the SEC filed a civil action against the men in connection to the sale of stocks in Weida Communications Inc. and SCL Ventures. The regulator said that they sold about $3 million of SCL Ventures to about 68 investors in 2004. At the time they were not registered with the Commission or associated with a registered dealer or broker. They were paid commissions of up to 20% for the stock sales.

Also, beginning in 2008, Birks and Esposito purportedly manipulated the market price for the common stock of Weida Communications, which was the successor company to SCL Ventures. About 16 investors paid at least $9.2 million of shares that were practically worthless. At the time, the three men were registered representatives with GlobalVest Group. They also received undisclosed commissions of up to 20% for the sales. Trading in Weida securities was suspended in April 2005. Now, the three men are accused of getting around these restrictions by signing agreements with Azzata that categorized their payments as finder and advisory fees.

Contact Shepherd Smith Edwards and Kantas, LTD LLP. We can help you determine whether you have grounds for a securities fraud case.

SEC Halts Microcap Scheme in South Florida, SEC, April 16, 2015

SEC Charges Group of Florida Brokers Stock Manipulation and Other Violations in Connection With Sale of Stock in SCL Ventures And Weida Communications, SEC, February 13, 2008


More Blog Posts:
RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales, Stockbroker Fraud Blog, April 30, 2015

More than $600K Whistleblower Award to Be Issued in SEC’s First Retalitation Case, Institutional Investor Securities Blog, April 30, 2015

City of Los Angeles, CA Sues Wells Fargo for Fraud, Stockbroker Fraud Blog, May 5, 2015

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