October 25, 2014

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

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

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

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

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

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


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

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

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


More Blog Posts:

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

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

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

October 22, 2014

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

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

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

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

Other actions by the SEC this year include:

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

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

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

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

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


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

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

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

October 18, 2014

SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention

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

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

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

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

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

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

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

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

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

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


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

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

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

October 17, 2014

SEC Wants to Bar Ex-Broker for Allegedly Misappropriating $2M

The U.S. Securities and Exchange Commission has taken action to bar Paul Marshall, an ex-investment adviser and broker from the industry. Marshall is accused of misappropriating $2M in client assets.

Last year, the SEC charged him and his related investment advisers, Bridge Securities and Bridge Equity Inc., with fraud. The regulator contends that Marshall took client assets to cover his own spending, including child support, alimony, expensive vacations, and tuition for his kids. He purportedly diverted the money into accounts under his control, set up misleading account statements, and raised cash for FOGFuels Inc., a private placement he controlled.

The Financial Industry Regulatory Authority Inc. has already barred Marshall from associating with all brokerage member firms. Last month, the SEC ordered him to pay $15 million in disgorgement because of the money he made from the alleged securities scam.

Marshall has to pay $1.35 million in penalties. The two investment advisers must pay $5.8 million. FOGFuels’s penalty is $725,000.

Marshall previously worked for eight brokerage firms. In 2008, he was let go from Oppenheimer & Co. (OPY) after a customer accused him of taking a loan from that client and taking part in private securities transactions.

Please reach out to our stockbroker fraud lawyers if you suspect that you were the victim of financial fraud. We represent investors with securities claims and financial fraud lawsuits and help them recover their investments losses.

Read the Administrative Proceeding Against Paul Marshall (PDF)

SEC: Cobb adviser used clients’ funds for trips, alimony
, AJC.com, September 16, 2013


More Blog Posts:
UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Closed-End Mutual Fund Sales, Stockbroker Fraud Blog, October 14, 2014

DOJ Charges Another Two Ex-Rabobank Traders Over Libor Manipulation, Institutional Investor Securities Blog, October 16, 2014

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

September 30, 2014

Former Axa Advisors Broker Faces SEC Charges Over Alleged $1.5M Ponzi Scam

The SEC is charging Dennis Wright, an ex-Axa Advisors broker, with operating a Ponzi scam for 14 years and bilking customers of $1.5 million. According to the regulator, from 1998 and into 2012, Wright allegedly persuaded at least 28 customers to take money out of Axa variable annuity accounts under the guise that he would move the money to mutual fund accounts that had higher returns and also were run by the brokerage firm.

The Commission claims that rather than invest clients’ money, what ended up happening is that Wright put the money into a bank account under his control and used the funds to pay other investors. The SEC says that Wright purposely manipulated Axa Advisor clients so he could steal their savings. Alleged victims included members of Wright’s community, including childhood friends, and unsophisticated investors.

Axa Advisors let Wright go in 2012 after the firm found out about the alleged fraud. Axa has since paid back the customers whose funds were misappropriated.

In other Ponzi scam news, the SEC has filed charges against eAdGear Holdings Limited, which is based in Hong Kong, eAdGear, Inc., which is in California, Qian Cathy Zhang, Charles S. Wang, and Francis Y. Yuen of running an international Ponzi and pyramid scam that raised over $129 million. Investors are from the U.S., Taiwan, and China.

The regulator claims that the companies and its operators claimed to be running a profitable Internet marketing company when really it was a scam targeting Chinese communities. Investors’ money was allegedly used to pay off earlier investors and to buy million-dollar homes for Zhang, Wang, and Yuen.

Bogus websites were purportedly created on eAdGear’s site to make it look as if there were real paying customers and investors were getting revenue distributions, when, in fact, the “revenue” was, in actuality, investor money. The companies were not making money from their products and services.

Also facing SEC Ponzi scam charges is Joseph Laurer, the former president of the AARP’s South Dade Chapter in Florida. The regulator is accusing him of raising $4.6 million from primarily local investors.

The SEC says that Laurer told investors he was going to place their money into AAA-rated corporate and government bonds that had a guaranteed fixed income and would bring no risk to their principal balance. However, he hardly invested any money into the securities. Instead, he purportedly used their funds to pay for his own personal spending and pay earlier investors their returns.

Laurer allegedly ran the Florida Ponzi scam from 2004 until his death earlier this year. His widow is the relief defendant. The Comission wants to get back the money and pay back investors.

Former AARP leader in Miami-Dade ran offshore Ponzi scheme, SEC charges, South Florida Business Journal, September 16, 2014

NJ couple accused of operating $129 million pyramid scheme, NJ.com, September 27, 2014

SEC charges ex-Axa broker with running $1.5 million Ponzi, InvestmentNews, October 1, 2014


More Blog Posts:
SEC to Dismiss Lawsuit Against SIPC Over Payments to Stanford Ponzi Scam Victims, Stockbroker Fraud Blog, September 11, 2014

DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B, Institutional Investor Securities Blog, May 14, 2014

Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award, Stockbroker Fraud Blog, September 25, 2014

September 23, 2014

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

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

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

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

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

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

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

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

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

The SEC Order Regarding Whistleblower Award (PDF)

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


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

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

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

September 20, 2014

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

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

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

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

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

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

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

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

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

Read the SEC Complaint (PDF)


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

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

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

September 4, 2014

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

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

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

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

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

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

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

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

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

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

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

Read the SEC Complaint (PDF)

Investor Alert: Investment Scams Exploit Immigrant Investor Program, SEC

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


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

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

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

August 22, 2014

Securities Regulations News: SEC Looks to Delay Principal Trading Rules, FINRA Adds More Time to REIT Price Changes and 2nd Circuit Says Dodd-Frank’s Whistleblower Protections Don’t Apply Overseas

SEC Wants To Extend Temporary Rule Letting Dually-Registered Advisers Get Principal Trading Consent

For the third time in four years, The Securities and Exchange Commission wants to extend a temporary rule that makes it easier for investment advisers that are also registered as brokers to sell from the proprietary accounts of their firms. The regulator issued for comment its proposal that would move the interim’s rule expiration date to the end of 2016 instead of the end of 2014.

Under the temporary rule, dually registered advisers can either get verbal consent for principal trades on a transaction basis or give written prospective disclosure and authorization, in addition to yearly reports to the clients. With principal trades, a brokerage firm uses its own securities in the transaction.

The Investment Advisers Act of 1940 mandates that advisers get written disclosure and consent prior to every principal trade. This is supposed to prevent possible conflicts of interest when a firm trades from its proprietary account. By extending the interim rule, the regulator wants more time to think about whether there should be a separate rule that would enhance the standards of brokers when it comes to offering investment advice.


FINRA Gives SEC More Time to Act On REIT Price Notification Rule
The Financial Industry Regulatory has extended the deadline for when the SEC must act on its proposed change to Rule 2340, about real estate investment trust price notifications, to until October 17. This is the second extension the self-regulatory organization has given to the Commission over this matter this year.

Last month, FINRA requested that the SEC allow independent brokerage-firms and nontraded real estate investment trust sponsors 18 months to get used to new guidelines that would require them to provide investors with a better idea of the costs involved in buying nontraded REIT shares and other direct placement programs/private placements.

Under the proposed rule change, which would apply to the account statements of brokerage firm clients, the per-share value of a nontraded REIT would not longer be listed at the common price of $10. Instead, the various commissions and fees that dealer mangers and brokers get would have to be factored. This would lower the amount of each private placement’s share price on an account statement. If the SEC decides to follow FINRA’s recommendation, investors with illiquid investments won't see this information on their account statements until April 2016.


Appeals Court Agrees that Dodd-Frank’s Anti-Retaliation Provision Only Apply Domestically
The US Court of Appeals 2nd Circuit held that Dodd-Frank’s anti-retaliation provisions do not apply overseas. The ruling upholds a lower-court decision that granted Siemens' motion to dismiss a lawsuit brought by a former compliance officer at its China offices. The ex-employee, Meng-Lin Liu, said he was retaliated against after reporting alleged wrongdoing at the company.

Under the 2010 Dodd-Frank Act, companies are not allowed to take action against certain whistleblowers. However, the whistleblower provisions don’t stipulate whether these protections extend abroad.

Citing a U.S. Supreme Court ruling, the appeals court affirmed that they only apply in the United States. It noted that Liu, his employer, and the entities involved in any of the alleged acts were foreigners located overseas and that these actions would have occurred outside the country.

Liu turned in a whistleblower tip to the SEC after leaving the company. Like the district court, however, the Second Circuit did not delve into whether or not Liu's failure to qualify for whistleblower protection was because he didn't file this information with the Commission until after he was let go by Siemens China.

Finra tacks on more time to REIT pricing change, Investment News, August 14, 2014

SEC seeks to delay principal trading rule for two years, MorningStar, August 13, 2014

Ruling Leaves Cloud on Whistleblowers, The Wall Street Journal, August 18, 2014

FINRA Rules


More Blog Posts:
SEC Examines Municipal Advisers and Alternative Mutual Funds, Reviews “Wrap-Fee” Accounts, Stockbroker Fraud Blog, August 20, 2014

FINRA Investor Alert Warns About Scams Touting Ebola Cure and Other Viral Disease Stock Schemes
, Stockbroker Fraud Blog, August 19, 2014

Lehman Brothers' Unsecured Creditors to Get $4.6B Payout, Institutional Investor Securities Blog, August 21, 2014

August 18, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam

The SEC has filed charges against Chimera Energy, a Houston-based penny stock scam, and four individuals for their purported involvement in a pump-and-dump scam that made over $4.5 million in illicit proceeds. Investors were led to believe that the company was creating technology that would allow for oil-and-gas production that was environmentally friendly.

The regulator claims that Andrew I. Farmer set up Chimera Energy and secretly got control of all the shares issued in an IPO. He then set up a promotional campaign to hype the stock, touting technology that would extract shale oil without fracking.

In the alleged Texas securities fraud, Chimera Energy claimed that an entity named China Inland gave it an exclusive license to develop and commercialize the non-hydraulic extraction technologies. The SEC says that China Inland is not a real company and that Chimera Energy had no such technology or even a license.

When the stock became inflated due to the false claims made by Chimera Energy, entities under Farmer’s control dumped over 6 million shares on the public markets to generate the illegal gains. In 2012, the SEC suspended Chimera Energy stock and blocked Farmer and others from dumping additional shares or misleading more investors.

Also facing SEC charges are Chimera figurehead CEOs Charles E. Grob Jr. and Baldermar Rios, who are accused of running Chimera Energy at the minimum level and approving press releases that were misleading. Carolyn Austin is charged with helping Farmer make money off his scam when she dumped Chimera Energy stock. The regulator wants permanent injunctions, financial penalties, disgorgement, prejudgment interest, penny stock bars, and officer-and-director bars.

SEC Announces Charges in Houston-Based Scheme Touting Technology to End Fracking, SEC.gov, August 15, 2014

Read the SEC Complaint (PDF)


More Blog Posts:

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

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case
, Stockbroker Fraud Blog, July 11, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales, Institutional Investor Securities Blog, August 13, 2014

August 11, 2014

SEC Tells J.S. Oliver Capital to Pay $15M for Alleged Cherry-Picking Scam

SEC Chief Administrative law judge Brenda Murray has fined J.S. Oliver Capital Management $15 million for securities violations and breach of fiduciary duty related to an alleged cherry-picking scam that bilked clients of approximately $10.9 million. The registered investment adviser must also pay $1.4 million in disgorgement.

According to the regulator, the RIA awarded profitable trades to hedge funds associated with the firm, while other clients, including a charitable foundation and a widow, were given the less profitable trades that resulted in major losses. These hedge funds that benefited were those in which J.S. Oliver founder Ian Oliver Mausner was an investor. Mausner is also accused of using soft-dollar commissions inappropriately.

Mausner continues to deny the SEC charges. He claims that the profitable trades were disproportionately allocated because of market volatility and that clients’ investment goals played a part.

Murray, however, found that the firm made over 4,000 potential cherry-picking transactions between ’08 and ’09. During that time, several favored accounts made substantial gains while three that were “disfavored” suffered a 99.7% loss. The Commission put out its cease-and desist order against J.S. Oliver last year.

During the purported scheme, the firm would wait until after trading closed for the day or the following day to allocate the trades. This let Mausner determine which securities had declined or appreciated in their value. He is said to have made over $200,000 in fees from just one of the hedge funds that benefited from winning trades. Mausner is also accused of marketing that very hedge fund to investors by bragging about its positive returns when really those results were because of his scam.

J.S. Oliver Capital is accused of misappropriating $1.1 million of client funds via the inappropriate use of soft-dollar funds. Soft dollars are rebates that brokerages pay investment advisers and customers for commission because the broker-dealers’ accounts were involved in transactions. Advisers are allowed to keep the money but they must disclose this and only use the funds in ways that could enhance clients’ investments.

The SEC claims that from ’09 through most of ‘11, J.S. Oliver and Mausner did not tell clients that soft dollars were used to pay his ex-wife money he owed from their divorce, cover J.S. Oliver’s “rent” at Mausner's home, pay portfolio manager Douglas Drennan, and take care of maintenance and other expenses at Mausner’s New York timeshare.

The SEC claims Drennan turned in false data to support the inappropriate use of the soft dollar credits and approved some of the payments to his company.

In addition to the $15 million fine against the firm, Mausner must pay a $3 million penalty and he is permanently barred from the industry. Drennan is also barred and must pay a $410,000 fine.

RIA slapped with $15 million fine; founder barred, Investment News, August 7, 2014

Read the SEC Order (PDF) (PDF)


More Blog Posts:

SEC Charges Chicago Investment Advisory Founder With Real Estate Investment Fraud, Institutional Investor Securities Blog, June 11, 2014
Alleged Cherry-Picking Scam Leads to SEC Charges Against California Hedge Fund Manager, Stockbroker Fraud Blog, December 18, 2012

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges, Stockbroker Fraud Blog, August 30, 2013

August 5, 2014

SEC Gets Nearly $70M Judgment Against Richmond, VA Firms, CEO Find Liable for Securities Fraud

AIC Inc., Community Bankers Securities LLC, and CEO Nicholas D. Skaltsounis must pay a nearly $70 million judgment for securities fraud, in the wake of an earlier trial that found them liable. The Securities and Exchange Commission had accused them of conducting an offering fraud while selling millions of dollars in AIC promissory notes and stocks to investors in different states, including unsophisticated investors and elderly customers.

The regulator accused them of omissions and misrepresentations of material information about the investments, their risks, the return rates, and how the money would be used by AIC, which is a financial services holding company, and Community Bankers Securities, its subsidiary brokerage firm. The SEC argued that the companies were not profitable and new investors’ money was used in Ponzi scam fashion to repay returns and principal to earlier investors.

Last year, a jury ruled in the SEC’s favor against AIC, Community Bankers Securities and Skaltsounis. Now, AIC must disgorge over $6.6 million, over $969,00 in prejudgment interest, and a $27.95 million penalty. Community Bankers Securities disgorgement is $2.8 million, over $400,000 in prejudgment interest, and a $27.95 million penalty. Skaltsounis is to pay over $2.5 million dollars in total.

SEC enforcement division director Andrew Ceresney said that these penalties should reinforce that the regulator is determined to aggressively go after companies and individuals to hold them accountable when they are not truthful with investors, even taking them to trial when necessary.

Just last month, the SEC filed administrative proceedings against a Seattle, WA investment advisor for misusing over $8 million in client moneys and making loans to himself. Dennis H. Daugs and his Lakeside Capital Management are accused of borrowing $3.1 million from one client without her consent.

The SEC also claims that Daugs and Lakeside Capital improperly directing an investment fund that the firm managed to make over $4.5 million in investments and loans. The money was used to facilitate personal real estate deals, purchase a luxury vacation home, refinance a vintage auto, and fend off claims of over $500,000 from firm clients.

Daugs and Lakeside Capital have repaid the diverted monies. They also consented to settle SEC charges and pay over $340,000 in disgorgement and interest to the investment funds and the one client. They also agreed to pay a $250,000 penalty. Daugs agreed to a 5-year minimum industry bar.

Our investment advisor fraud lawyers help investors recoup their money. Working with a securities attorney dramatically increases your chances of getting back all or most of your losses. You want to work with a securities fraud law firm that has the resources and experience to help you recover your money. Your case consultation with us is free. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Obtains Nearly $70 Million Judgment Against Richmond, Va.-Based Firms and CEO Found Liable for Defrauding Investors, SEC, August 1, 2014

Adviser misused $8 million in client funds: SEC, Investment News, July 17, 2014


More Blog Posts:
SEC Charges Ex-UBS Broker With $730K Elder Financial Fraud Ponzi Scam, SEC, August 4, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

August 4, 2014

SEC Charges Ex-UBS Broker in $730K Elder Financial Fraud Ponzi Scam

The Securities and Exchange Commission has filed charges against ex-UBS Wealth Management Americas (UBS) broker Donna Tucker for a Ponzi fraud that allegedly bilked elderly investors of over $730,000. Tucker is accused of misappropriating the money from UBS customers over a five-year period while she worked at the financial firm.

According to the SEC, Tucker took part in unauthorized trading, made misrepresentations to customers about the status of their funds, and forged documents and checks. She allegedly gained customers’ trust by becoming friends with them.

For example, she helped one blind couple take care of their medical needs and pay their monthly bills. The latter action gave her access their checkbook. She used this authorization to forge checks written to cash that she then gave to herself.

She also purportedly lied to the couple about their holdings and gave them bogus documents showing fake brokerage account balances. The SEC says that inn one such instance, after she allegedly took money from the couple’s IRA account, the IRS sent them a delinquency letter about the premature distribution. When the couple asked Tucker about it she claimed that the letter was a mistake and no money had been withdrawn. She also generated a fake account statement to support her lie, as well as a fake letter that was supposedly from the IRA saying the matter had been resolved.

The SEC claims that Tucker took close to $350,000 from this couple alone and hid the theft by convincing them to bank online and use electronic statements because she knew they would not be able to get them.

She also allegedly took out unauthorized margin loans on accounts of customers to pay back other accounts. Tucker then used investors’ funds to pay for vehicles, vacations, clothes, and a country club membership.

UBS has since paid back several customers for Tucker’s fraud. She resigned from UBS last year. In September 2013, the Financial Industry Regulatory Authority barred her.

Tucker is settling the SEC charges and has agreed to disgorge the monies. The order she consented to permanently enjoins her from violating the Securities Act of 1933’s Section 17(a), the Securities Exchange Act of 1934’s Section 10(b), and Rule 10b-5. Meantime, the U.S. Attorney’s Office for the Western District of Virginia has filed a parallel criminal case against her.

Senior Fraud
Elder financial fraud is a serious problem. Shepherd Smith Edwards and Kantas, LTD LLP represents senior investors and others who have suffered losses because of securities fraud. Financial fraud by brokers and investment advisors may result in a huge financial strain for elderly investors. Many of them rely on their retirement monies to carry them through for the remainder of their lives. Our securities lawyers are here to help investors recoup their losses.

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers, SEC, July 31, 2014

Read the SEC's Complaint (PDF)


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

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

July 30, 2014

SEC News: Ex-Harbinger COO Settles Hedge Fund Fraud Case and Regulator Files More Charges in “Solar Farm” Scam and Football-Like Boiler Room Case

Ex- Harbinger Capital Partners LLC COO Admits Wrongdoing in Hedge Fund Case
Peter A. Jenson, the former chief operating officer at Harbinger Capital Partners LLC, has agreed to pay $200,000 and admit to wrongdoing in the U.S. Securities and Exchange Commission’s case accusing him of assisting in hedge fund fraud. The scam involved his former firm and its owner Philip A. Falcone and sought to misappropriate millions of dollars so Falcone could pay his taxes.

The SEC charged Jenson, Falcone, and Harbinger in 2012. As part of his settlement, Jenson is acknowledging that he knew about the violations committed by Harbinger and Falcone. He said that he helped Falcone take part in a related party loan by failing to make sure the lender, Harbinger Capital Partners Special Situations Fund, had its own counsel, the loan was consistent with the fiduciary duties that Falcone owed the Special Situations Fund, and that Falcone paid an interest rate on the loan that was “above market.”

Jenson also admitted that he failed to tell investors about the loan in a timely manner and acted so as to compel the lender to hurry Falcon’s loan payment once investors in the Special Situations Fund were allowed to redeem their investments.

SEC Files More Charges in Penny Stock Scam Involving Solar Farms
The SEC is filing securities fraud charges against MSGI Technology Solutions and its CEO J. Jeremy Barbera. The regulator claims that they bilked investors by promoting a joint venture involving solar energy farms on land that purportedly belonged to an electricity provider run by Christopher Plummer. The agency previously charged Plummer and another penny stock company and CEO with putting out misleading press releases.

Now, the regulator is contending that Barbera also conspired with Plummer. The two of them are accused of falsely portraying in press releases that MSGI was a successful renewable energy company involved in solar energy projects that were about to become profitable. In fact, the penny stock company has no customers, operations, or revenue. Also, Plummer’s company didn’t have the financing or assets required to generate solar energy farms.

Barbera and MSGI are settling the SEC charges, which includes Barbera paying a $100,000 penalty. He also has consenting to a permanent bar from either acting as a director or an officer of a public company or taking part in a penny stock scheme again.

SEC Files More Charges in Boiler Room Scam That Touted Super Bowl Connection
The SEC has filed charges against four executives and their three companies, CalPacific Equity Group, DBBG Consulting, and DDBO Consulting, for their involvement in a boiler room scam that promoted a company that had new technology that was supposedly going to be used during Super Bowl 2013.

Senior investors and others were pressed into buying stock in Thought Development Inc., which purportedly developed a laser-line system that could create a line on a football field for a first-down marker that would be visible not only on TV but also by officials, players, and live fans. There was no such deal with the Super Bowl.

The scam raised about $1.7 million from over 110 investors who were led to believe that an IPO was about to happen and that their funds would go toward developing the technology. The SEC says that instead, at least half of offering proceeds were paid as commissions and fees to sales agents or kept by these companies.

The defendants have consented to settle the SEC charges. Meantime, two of the people previously charged in the scam, Dean Baker and Daniel Dritsas, have entered into plea deals in criminal cases related to the allegations.

The proposed final judgment in the Harbinger case (PDF)

Read Jenson's Consent (PDF)

The SEC's Complaint in the "Solar Farm" Penny Stock Case (PDF)

SEC Announces Additional Charges in Football-Related Boiler Room Scheme, SEC, July 24, 2014


More Blog Posts:
Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS, Stockbroker Fraud Blog, July 28, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud blog, July 23, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays
, Institutional Investor Securities Blog, July 30, 2014

June 23, 2014

SEC Chairman Mary Jo White Wants Reforms Made to Bond Market

U.S. Securities and Exchange Commission Chairman Mary Jo White wants significant reforms made to the bond market. Speaking at the Economic Club of New York, White spoke about how trading in these fixed income markets are “highly decentralized.”
She expressed concern that technology was being used in these markets to make this decentralized approach to trading more beneficial for market intermediaries.

According to Reuters, White’s speech is a sign that the SEC is at last making an effort to implement recommendations it made in 2012 about the $3.7 million municipal securities market. The regulator is launching an initiative that would mandate that alternative trading systems and other electronic dealer networks make available to the public their best prices for municipal bonds and corporate bonds. This should give smaller retail investors, and not just certain select parties, pre-trading price data.

White also expressed support for a Municipal Securities Rulemaking Board-drafted measure that would mandate that municipal bond dealers abide by best execution rules. These regulations demand that broker-dealers execute orders for customers at the best price and in the shortest amount of time. The Financial Industry Regulatory Authority and MSRB would handle guidance for how to make best execution happen.

The SEC Chairman also said she supports rules that FINRA and MSRB are completing that would compel dealers to reveal more details about the compensation they receive for “riskless principal transactions.” This type of trade happens when dealers buy securities from customers and sell them right away to other dealers. Customers end up paying a mark-up for the trades that dealers don’t have to tell them is included.

The municipal bond market is currently very fragmented. There is no centralized exchange while there are tens of thousands of issuers.

At Shepherd Smith Edwards and Kantas, LTD LLP, our bond market fraud lawyers help investors to recoup their losses. Please contact our securities law firm today and ask for your free case consultation.

Bond Market Has $900 Billion Mom-and-Pop Problem When Rates Rise, Bloomberg, June 23, 2014

SEC's White calls for reforms in fixed income markets
, Reuters, June 20, 2014

Mary Jo White of S.E.C. Seeks to Make More Bond Market Data Available, New York Times, June 20, 2014

June 10, 2014

SEC Files Order Against New Mexico Investment Adviser Over Allegedly Secret Commissions

The SEC has submitted an order against Dennis J. Malouf accusing him of investment adviser fraud. The regulator says that he allegedly took trading commissions that he wasn’t entitled to for himself. He was in charge of UASNM’s bond trading operation between 2008 and May 2011. Malouf, who was the CEO of UASNM Inc. is now with M Wealth Management.

According to the Commission, he set up a secret verbal deal with someone at a broker-dealer branch to send him the commissions generated by the broker for bond trades that this person did with Malouf’s firm. The regulator claims that rather than look for the best way to make the bond trades happen, UASNM worked only with the broker-dealer. Over the approximately three-year period, the investment advisory firm made over 200 bond trades through the unnamed branch. This was about $30 million to $40 million in trades every year, for which Malouf obtained about $1.1M in commissions.

In 2011, UASNM fired Malouf, who was a majority owner,because of misconduct allegations. He then sued for wrongful termination and that is when the firm’s attorneys discovered the purported commission deal.

Meantime, the regulator has censured UASNM, which settled for $100,000. It is also paying over $500,000 to over clients who were affected by the additional markups because the investment advisory firm did not look for the best bond prices.

Please contact our investment advisor fraud lawyers today. We help investors get their money back.

SEC files cease-and-desist order against adviser accused of stealing $1.1 million, InvestmentNews, June 10, 2014

UASNM Inc. settles with SEC over alleged commission scheme, BizJournals, June 10, 2014

Read the SEC Order (PDF)


More Blog Posts:
State Senator Reprimanded For Violating the Texas Securities Act, Stockbroker Fraud Blog, May 8, 2014

SEC Charges Total Wealth Management With Securities Fraud, Receiving Undisclosed Kickbacks, Stockbroker Fraud Blog, April 18, 2014

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

June 6, 2014

SEC To Tackle High-Speed Trading, Dark Pools With New Initiatives

U.S. Securities and Exchange Commission Chairman Mary Jo White said that the regulator is working on new rules that would target dark pools, high-speed traders, order-routing practices, and trading venues that don’t offer much transparency. Her proposed regulations mark the first time she has spoken about her plans to overhaul equity market structure rules since becoming head of the SEC last year.

Included in White’s proposals are an "anti-disruptive trading" regulation to curb high-frequency traders from making aggressive short-term trades when the market is vulnerable, as well as a strategy to make proprietary trading shops register with the regulators and share their books for inspection. The SEC chairman also said that her team is working on enhancing the way trading firms handle the risks involved with computer algorithms.

To improve oversight over high-speed traders, White wants to shut a loophole that lets trading firms get out of registering with the Financial Industry Regulatory Authority if they trade off traditional exchanges. Also, while noting that it wasn’t the job of the SEC to forbid algorithmic trading, White said that the Commission is trying to determine if there is anything about a computer-driven trading environment that works against the best interests of investors.

She also spoke about the development of a proposed rule that would make dark pools, brokerage internalizers, and other alternative trading venues disclose more about they way that they are run, as well as another proposal that would require brokers to reveal more about how they handle orders for big institutional investors. The latter would potentially decrease conflicts.

White said that the new measures would ideally create greater market fairness and stability, improve transparency and disclosures in the market place, and create markets that are more effective for smaller companies. Requiring greater transparency should hopefully even up the market for institutional investors and retail ones. Currently, retail brokers must report on their order routing practices while institutional investors’ flow patterns tend to be more opaque.

The agency has been assessing equity market structure reforms for the last few years, especially in the wake of the 2010 flash crash when the Dow Jones Industrial Average dropped 700 points before rebounding abruptly. Although high-speed trading tactics weren’t directly blamed for that event, much discourse about this type of trading has occurred since. In particular, the Regulation National Market System (REG NMS) was blamed for excessively fragmenting the market to such a degree high-speed trading occurred.

Meantime, some dark pools appear to be opting for greater transparency on their own. These private, lightly regulated venues are where sellers and buyers can trade under more anonymity than on stock exchanges. Along with internalizers, which are firms that make trades for retail brokerages, dark pools make up close to 40% of stock trading.

While critics of dark pools have said this type of off-exchange trading damages the market’s ability to price securities accurately because sell and buy orders aren’t published, their supporters have said that they give large institutional investors a chance to trade without altering the price as much as if their orders were shown on an exchange.

On Monday, Credit Suisse Group AG (CS) and Goldman Sachs Group Inc. (GS), which are two of the biggest opaque trading venue operators, made available documents that explain the way their venues work. Their disclosures arrived the same day that FINRA made available to the public data about the volume of share trades that are made on dark pools.

SEC Chairman Targets Dark Pools, High-Speed Trading, The Wall Street Journal, June 6, 2014

Finra makes dark pool data available for free, Credit Suisse leads in first week, FierceFinanceIT, June 3, 2014

FINRA Makes Dark Pool Data Available Free to the Investing Public,
FINRA, June 2, 2014


More Blog Posts:
SEC Sues Wedbush Securities and Dark Pool Operator Liquidnet Over Regulatory Violations, Institutional Investor Securities Blog, June 6, 2014

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

Second Circuit Overturns Judge's Decision to Block Citigroup's $285M Settlement With the SEC, Stockbroker Fraud Blog, June 4, 2014

May 27, 2014

SEC Files Charges in Penny Stock Scams

The U.S. Securities and Exchange Commission has filed charges in a number of penny stock scams involving microcap companies, promoters, and officers. As of March 22, the regulator had charged 25 companies and 48 individuals in probes that originated out of its regional office in Miami. The agency has been working with the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida to expose the financial fraud. Many of those charged by the SEC are also contending with criminal charges.

Two of those facing SEC charges are stock promoters Stephen C. Bauer and Kevin McKnight of Boca Raton. They are accused of market manipulation fraud involving Environmental Infrastructure Holdings Corp.’s (EIHC) penny stock. According to the regulator, they made it seem as if there was market interest EIHC to get investors to buy the stock, which artificially raised trading volume and price.

Also named in an SEC complaint is Richard A. Altmare from Boca Raton for market manipulation involving Sunset Brands Inc. (SSBN) stock. In an unrelated penny stock case, the SEC is charging Jeffrey M. Berkowitz, who is from Jupiter, Florida with participating in a market manipulation scheme, this one over Face Up Entertainment Group (FUEG) stock.

Another man accused of market manipulation-related charges is New Yorker Eric S. Brown. The claims against him involve DAM Holdings Inc. (DAMH) and International Development & Environmental Holdings Corp. (IDEH) stock. Meantime, the SEC is accusing Urban AG Corp. (AQUM), a Massachusetts-based company, and its CEO and President, Billy V. Ray Jr. of Cumming, Ga., of scheming to make an undisclosed kickback payment to a hedge fund manger in return for the fund’s purchase of restricted shares in the company’s stock. Ray also is accused of taking part in another kickback scheme in which he made an inducement payment to stock promoter Wade Clark. The SEC says that Clark took part in an insider trading scam involving Ray.

Penny Stock Scams
Penny stock scams typically involve attempts to inflate share prices to make it seem as if the market demand for a stock is great. Once interest is generated and stock demand and the price goes up, scammers will dump their shares at the inflated price, which is also known as “pump and dump.” While penny stocks legitimately do have high potential for growth and profit, they have become a favorite for scammers.

Many fraudsters have started to promote their scheme via “pitch” spam emails. According to a report recently issued by security company Trustwave, spam messages promoting penny stocks made up 16% of unwanted email. That’s a significant rise from comprising less than 1% of unwanted email in 2012. Promoters send out emails promoting a stock as an amazing deal that is expected to garner astronomical profits and encourage people to buy in as soon as possible.

Shepherd Smith Edwards Kantas, LTD LLP is a securities law firm. We represent investors who have suffered losses where financial fraud was involved.

Huge surge in spam emails pitching penny stocks, Marketwatch, May 27, 2014

SEC Announces Latest Charges in Joint Law Enforcement Effort Uncovering Penny Stock Schemes, SEC, May 22, 2014


More Blog Posts:
SEC Investigates Merrill Lynch & Charles Schwab Over Allegations of Failures that Allowed Mexican Drug Cartels to Launder Money, Stockbroker Fraud Blog, May 22, 2014

SEC Judge Bans Money Manager For Misleading Morningstar and the Public, Institutional Investor Securities Blog, May 27, 2014

SEC Warns About Investment Scams Involving Marijuana, Stockbroker Fraud Blog, May 24, 2014

May 24, 2014

SEC Warns About Investment Scams Involving Marijuana

The U.S. Securities and Exchange Commission has put out a an investor alert warning about possible fraud involving microcap companies claiming they are involved in the marijuana industry. Scammers are using the latest growth in the pot industry to get investors to fork over their money in exchange for supposed high returns.

Already, the SEC has suspended five companies for allegedly committing this fraud, including Fusion Pharm Inc., which claims to make a professional cultivation system for cannabis cultivators to use. The Denver-based company was suspended because, according to the regulator, there are doubts about the accuracy of statements it made about assets, financial statements, revenues, financial condition, and business transactions. Other companies in which trading was suspended include: Cannabusiness Group Inc., GrowLife Inc., Petrotech Oil and Gas, and Advanced Cannabis Solutions Inc. Two of the companies were also suspended because of possibly illegal activity, including market manipulation and unlawful securities sales.

According to federal securities laws, the Commission can suspended trading in a stock for 10 days and prohibit a brokerage firm from soliciting investors to sell or buy the stuck until reporting requirements are fulfilled. Unfortunately, it is not uncommon for fraudsters to exploit the latest product, innovation, growth industry, or technology. Marijuana-related companies are typically not required to report to the SEC, which means investors usually have limited access to the kind of information they can get about management, products, services, and finances. This can make it easier for scammers to spread bogus information about a company, allowing them to profit.

Marijuana-Related Investments
According to an SEC alert, marijuana-related investments can be sold in unregistered offerings and may take various forms, such as penny stocks and microcap stocks. Microcap stocks are issued by the smallest companies and their stock price is usually low. Penny stocks are stocks with the lowest prices.

The Commission wants investors to know that if they are thinking about investing in a company that is involved in the marijuana industry, the company could be at risk of prosecution. Federal law currently makes it illegal to dispense, make, or distribute marijuana, and a lot of states have similar laws. However, 20 states and D.C. have made certain marijuana-related activity illegal.

The Financial Industry Regulatory issued its own alert about marijuana stock scams earlier this year. The self-regulatory organization said signs of a possible fraud involving a marijuana-related company might include: Text, email, or fax invites to webinars, tweets, and infomercials. Marijuana investment fraudsters typically promising big returns, while falsely touting a past history of success, to create a huge demand for a stock. Then, in pump and dump fashion, once their share prices and volumes hit their highest levels, scammers sell their shares and make a profit.

Please contact our securities fraud lawyers if you think your investment losses may be a result of investment fraud.

Investor Alert: Marijuana-Related Investments, Investor Alert, May 16, 2014

Read the SEC Trading Suspension Order Against Fusion Pharm (PDF)

Investor Alert: Marijuana Stock Scams


More Blog Posts:
Insider Trading Headlines: Principal of Wynnefield Capital Now On Trial, Ex-Vitamin Company Board Member Settles His Case, and Clinical Drug Trial Doctors Face Charges Related to New Cancer Drug, Stockbroker Fraud Blog, May 23, 2014

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk, Stockbroker Fraud Blog, June 26, 2013

R.P. Martin To Pay $2.2M in Libor Rigging, Institutional Investor Securities Blog, May 22, 2014

May 23, 2014

Insider Trading Headlines: Principal of Wynnefield Capital Now On Trial, Ex-Vitamin Company Board Member Settles His Case, and Clinical Drug Trial Doctors Face Charges Related to New Cancer Drug

Wynnefield Capital Inc. Principal On Trial in SEC Insider Trading Case
Nelson Obus, the principal of Wynnefield Capital Inc., is accused of engaging in insider trading to make his hedge fund $1.3 million. The U.S. Securities and Exchange Commission says that he confessed twice that he received a tip that SunSource Inc. was going to be put up for sale. One of the confessions was purportedly to the CEO of SunSource.

In 2001, SunSource announced it was going to be bought by Allied Capital Corp. It’s stock price then doubled. Obus, who had purchased stock in the company, made $1.3 million.

The regulator is also suing ex-GE capital undewriter Brad Strickland and Peter Black, an ex-analyst for Winnyefield. The agency believes Strickland gave Black the tip. The latter then sent the information to Obus. They’ve denied any wrongdoing.

The insider trading case, which the SEC brought in 2006, was initially thrown out by US District Judge George Daniels. A federal appeals court revived the securities case in 2012. Now, Judge Daniels is once again presiding over the case.

The Commission wants to ban the defendants from working as public company directors and officers. It is also seeking penalties.


Ex-NBTY Inc. Board Member and Relatives Settles Insider Trading Charges for Over $500,000
Glenn Cohen, a board member of vitamin company NBTY Inc., has settled SEC charges accusing him of insider trading along with other family members. According to the Commission, Cohen gave his three brothers, Craig Cohen, Steven Cohen, and Marc Cohen, and Laurie Topal the confidential data that NBTY Inc. was working on the terms of its sale by The Carlyle Group. They made illicit profits of $175,000 and are settling for over $500,000.

Aside from the financial penalties, Glenn Cohen is barred from taking on the role of director or officer in a public company. By settling, the Cohens and Topal are not denying or admitting to the SEC charges.


Clinical Trial Doctors Involved In Testing of New Cancer Drug Are Accused of Insider Trading
Dr. Franklin M. Chu and Dr. Daniel J. Lam are now facing insider trading charges accusing them of illegally trading on the knowledge that the Food and Drug Administration had stopped clinical trials of Capesaris, the prostate cancer drug that GTx Inc. was developing. The SEC believes that when the share price dropped by more than 36%, doctors avoided substantial losses because they'd sold their stocks in GTx.

Lam and Chu have agreed to settle the SEC charges, which also accuse them of making over $45,000 in illicit profits. They will collectively pay $116,864.


SEC Charges Two Clinical Drug Trial Doctors With Insider Trading, SEC.gov, May 19, 2014

Read the SEC Complaint Against the Cohens and Topal (PDF)

Wynnefield’s Obus Traded on Inside Tip, SEC Says in Trial, Bloomberg/Businessweek, May 20, 2014


More Blog Posts:
Insider Trading Roundup: Lawson Software Founders Pay $5.8M to Settle SEC Allegations, Three Sales Managers Face SEC Charges, and Kentucky Mayor Will Turn Over Illicit Profits, Stockbroker Fraud Blog, May 16, 2014

Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information, Stockbroker Fraud Blog, March 19, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014