September 29, 2015

UBS Puerto Rico To Pay the SEC $15M Over Closed-End Bond Fund Sales

UBS Financial Services Inc. of Puerto Rico (UBS PR) has consented to pay $15 million to resolve the Securities and Exchange Commission’s claims related to the brokerage firm’s supervision of the sale of its closed-end Puerto Rico bond funds (CEFs). The SEC contends that UBS PR did not properly supervise ex-broker Jose Ramirez, who is accused of increasing his compensation by at least $2.8 million when he allegedly had customers improperly borrow funds to invest in Puerto Rico bond funds. UBS fired Ramirez last year.

The funds came from UBS Bank USA, which is a bank affiliated with UBS PR. Under bank and UBS rule, the funds from UBS Bank are not allowed to be used to carry or purchase securities. According to the SEC, not only was using the funds from the Bank a violation, investors were placed at risk of losses while Ramirez profited. The SEC has filed a separate complaint against the ex-UBS broker.

The regulator claims that Ramirez misled customers about how safe the CEFs were, as well as misrepresented the risks involved. He purportedly lied to his branch manager when he was asked about suspect transactions.

To avoid getting caught, Ramirez allegedly told customers to move money from their credit line to an external bank account before placing the funds into their brokerage account at UBS PR and then buying the CEFs. The CEFs, which were heavily invested in Puerto Rico bonds, dropped in value when the Puerto Rican bond market started to decline in the Fall of 2013. Customers then had a choice of either paying down part of the loans or risk liquidation of their investments.

The $15 million settlement will be put into a fund for investors who sustained losses when the funds dropped in value. The Commission's order instituting a settled administrative proceeding claims that UBS PR did not have the systems and procedures to prevent or detect the misconduct that Ramirez was engaging in. Even though UBS PR was allegedly apprised at least twice that customers of Ramirez might be violating the loan policy, the brokerage firm’s policies did not provide for reasonable follow up. UBS PR also purportedly lacked a system to make sure that credit line proceeds that were moved out of firm accounts were not used to buy securities.

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September 21, 2015

SEC Headlines: Regulator Settles Private Equity Fund Fraud Case for $6.8M, Accuses R.T. Jones of Not implementing Cybersecurity Measures, and Files A Securities Case Over Stock Manipulation

Men Accused of $6.8M Private Equity Fund Fraud Allegedly Bilked Friends and Family
The Securities and Exchange Commission has settled charges with two men and their unregistered investment advisory firm for allegedly bilking investors in a private equity fund. Under the agreement, William B. Fretz, John P. Freeman, and their Covenant Capital Management Partners, L.P. will owe the regulator about $6.8 million. Any money collected will go to investors that were defrauded.

According to the SEC order instituting administrative proceedings over the alleged private equity fund fraud, the two men, their firm, and Covenant Partners, L.P., which is the fund they managed, sold partnership interests in the fund to friends and family. However, instead of investing the money, they used the cash for themselves and their other business.

Fritz and Freeman are accused of taking more than $1 million and placing it with their brokerage firm, Keystone Equities Group L.P., which was failing. They also purportedly paid close to $600,000 in performance fees they didn’t make and used assets from the fund to pay back personal obligations.

Freeman, Fretz, and CCMP consented to settle charges accusing them of willfully violating federal securities laws and SEC anti-fraud laws. However, they are not denying or admitting to the SEC fraud charges.

Investment Adviser R.T. Jones Capital Settles SEC Charges Related to Cybersecurity
R.T. Jones Capital Equities Management has settled SEC charges accusing it of not putting into placed required cyber security procedures and policies prior to a breach that compromised the personal identifiable (PII) information of thousands of its clients. Without denying or admitting to the findings, the investment adviser agreed to pay a $75,000 penalty and consented to cease and desist from future violations of the Securities Act of 1933’s Rule 30(a) of Regulation S-P.

According to an SEC probe, R.T. Jones violated federal securities laws’ “safeguard rule.” The rule mandates that registered investment advisers put into place written procedures and policies that are designed in a manner reasonable enough that they protect customers’ information and records from security threats. The regulator said that for four years R.T. Jones did not adopt any such policies.

Continue reading "SEC Headlines: Regulator Settles Private Equity Fund Fraud Case for $6.8M, Accuses R.T. Jones of Not implementing Cybersecurity Measures, and Files A Securities Case Over Stock Manipulation" »

September 16, 2015

SEC Files Fraud Charges in $18M Arizona Securities Scam that Bilked 225 Investors

The Securities and Exchange Commission is charging James Hinkelday, Jason Mogler, Brian Buckley, Casimer Polanchek, and James Stevens with bilking millions of dollars from investors. The regulators claims that the Arizona residents misappropriated about 97% of $18 million from 225 investors who thought their money was being used to acquire and develop beachfront property in Mexico, run recycling facilities, and buy foreclosed residential properties to resell. The men are accused of making Ponzi-like payments to investors who threatened to sue them.

In its complaint, the SEC says that the men—none of whom were registered with the agency to sell investments—solicited prospective investors via magazine, radio, and Internet ads, along with cold calls, marketing materials, and investor presentations. Polanchek purportedly looked for investors at cruises, bars, and self-help seminars. The men also were involved in The Investment Roadshow, which is an Arizona radio program that instructed listeners on how to use self-direct IRAs to put money in their companies. Prospective investors were guided to a website where they could schedule appointments and join seminars to find out more about the investment opportunities.

Continue reading "SEC Files Fraud Charges in $18M Arizona Securities Scam that Bilked 225 Investors" »

September 9, 2015

SEC Moves to Stop Financial Fraud That Bilked Over 100 Investors Of Over $14 Million

The Securities and Exchange Commission has filed fraud charges and obtained an asset freeze against three individuals accused of stealing investor money. According to the regulator, David Kayatta, Paul Ricky Mata, and Mario Pincheira raised over $14M from over 100 investors for two unregistered funds. The money was supposed to be placed in real estate.

The SEC’s complaint noted that on a website run by Mata, the alleged fraudsters advertised an “Indestructible Wealth Bootcamp” and promised said wealth when, in truth, both funds never made a profit. Online videos on the website and YouTube marketed this investment seminar and another one titled “Finances God’s Way.” Retirees were encouraged to sell their securities holdings and get involved in the unregistered funds.

The complaint states that Mata is an ex-licensed securities professional with a lengthy disciplinary record that he hid from investors. He and Kaytata allegedly promised guaranteed returns for one fund even though a state regulator had sanctioned them for making such promises. The two men are accused of diluting the investments in the other fund by bringing in new investors while making false assurances to current investors that the two funds were doing well. Pincheira, Kayata, and Matta purportedly charged dinners, entertainment, travel, and other expenses on Pincheira’s credit card and paid off the balances with investor money. Monthly balances on the card were often above $40,000.

Unfortunately, new technologies are making it easier for fraudsters to reach more investors. Well-edited videos and legitimate looking ads can make scammers appear as if they are experienced and qualified to offer financial advice when they are not. At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help investors who have sustained losses because of financial scams.

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August 29, 2015

SEC Gets Asset Freeze in Alleged $125M Fraud Case Involving Chinese Investors Seeking US Immigration

The Securities and Exchange Commission said that an asset freeze has been imposed on Lobsang Dargey, who is accused of bilking Chinese investors looking to obtain residency in the United States through the EB-5 Immigrant Investor Pilot Program. The regulator contends that Dargey and his Path America companies raised $125 million for two real estate projects in Washington State while diverting $14 million for other real estate projects and using $3 million for personal spending.

With the EB-5 program, foreign citizens can qualify for residency in the country as long as they invest at least $500,000 in a specific project that preserves or creates at least 10 jobs in the U.S. Dargey and his companies purportedly got 250 Chinese investors to invest money under the program.

The SEC said that Darby told U.S. Citizenship and Immigration Services and the Chinese investors that the funds would go toward a downtown Seattle skyscraper and a residential/commercial development with a farmer’s market in Everett. The regulator also claims that Darby misled investors about their chances of getting permanent residency for their investments. For instance, an investor’s application for residency can be denied if his/her funds are used for a project that materially deviates from the plan that was approved by the USCIS.

Continue reading "SEC Gets Asset Freeze in Alleged $125M Fraud Case Involving Chinese Investors Seeking US Immigration" »

August 26, 2015

SEC Says Broker-Dealers Need to Do a Better Job of Monitoring High Risk Products

The Securities and Exchange Commission has put out an alert warning brokerage firms that they need to better monitor the sale of high risk complex investments to retail investors. The regulator said that its analysis of 26,600 transactions of $1.25 billion of structured securities products revealed that there has been quite a number of times when the investments were sold to investors for whom they were not appropriate.

According to InvestmentNews, the Commission examined 10 branch offices of brokerage firms. The assessments took place from January 2011 through the end of 2012. In one firm, they discovered $96 million of structured-product sales that were made to conservative investors. At two other broker-dealers, the SEC discovered high concentrations of structure products in the accounts of older investors. One representative purportedly modified a customer’s investment goals without that person’s consent after a sale went through to make the complex product purchases appear justified.

Brokers are required to abide by suitability standards, which mandate that investment products that are sold meet each client’s risk tolerance and investment goals. The SEC said that in exams that were conducted, there were firms that appeared to have weak suitability controls.

The Commission wants broker-dealers to regard this alert as a wake up call so that they will take a closer look at their compliance programs. The regulator noted that while all the broker-dealers that were scrutinized had written procedures and policies for suitability, the controls were not consistently or properly implemented. In some instances, suitability controls differed among the different branches of a firm.

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August 2, 2015

SEC Cases: Pennsylvania Lawyer is Charged with Insider Trading, San Diego Investment Adviser is Accused of Stealing Client Funds, and New York Man is Arrested for Fraud

SEC Accuses Pennsylvania Attorney of Insider Trading
The U.S. Securities and Exchange Commission is charging Herbert K. Sudfeld with insider trading ahead of the announcement that Nationwide Mutual Insurance Company and Harleysville were about to merge in a $760 million deal. The regulator contends that the Pennsylvania attorney illegally traded on the information, which caused Harleysville’s stock price to rise 87% when the announcement went public.

Sudfeld, who was a real estate partner at a law firm that gave Harleysville counsel on the merger, learned about the impending deal from a conversation involving a lawyer and the legal assistant they shared. That attorney was involved in the deal.

Sudfeld is accused of stealing the information and buying Harleysville stock. After the merger was announced, he purportedly sold the share he had bought, making about $79,000 in illegal profits. Prosecutors in Pennsylvania have filed a parallel criminal action against him.

San Diego Investment Adviser Accused of Stealing Client Money, Running Ponzi Scam
Paul Lee Moore and his now defunct investment advisory firm are charged with bilking client funds and operating a Ponzi scheme. According to the complaint filed by the SEC, Moore and Coast Capital Management raised $2.6 million from clients, and he allegedly siphoned almost $2 million for his personal spending.

The regulator said that Moore took the rest of the money and, in Ponzi scam-fashion, paid earlier clients with funds brought in by new clients. He is accused of sending out bogus account statements to clients, as well as sharing these statements with prospective clients. The California investment adviser purportedly lied about his educational background, employment history, as well as about how much Coast Capital managed in assets.

Continue reading "SEC Cases: Pennsylvania Lawyer is Charged with Insider Trading, San Diego Investment Adviser is Accused of Stealing Client Funds, and New York Man is Arrested for Fraud" »

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.”

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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.

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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.

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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.

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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,

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

The SEC Order Against Slater, Williams (PDF)

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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

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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