November 17, 2014

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

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


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

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

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

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

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

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

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


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

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

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

November 7, 2014

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

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

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

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

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

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

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


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

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

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

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

· Look out for huge reverse splits.

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

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

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


More Blog Posts:

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

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

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

October 25, 2014

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

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

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

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

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

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


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

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

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


More Blog Posts:

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

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

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

October 22, 2014

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

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

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

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

Other actions by the SEC this year include:

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

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

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

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

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


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

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

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

October 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

October 8, 2014

Securities Fraud: Ex-Ameriprise Adviser to Pay $3M for Ponzi Scam, Four Insurance Agents Allegedly Defrauded Senior Investors, and Trading in Nine Penny Stocks is Suspended

Former Ameriprise Adviser Ordered to Jail, Must Pay $3M Restitution
Oscar Donald Overbey Jr., an ex-Ameriprise Financial Services (AMP) financial adviser, must pay back the $3 million he allegedly stole from investors while operating a Ponzi scam. The 47-year-old has been sentenced to three and a half years behind bars.

Court documents say that from 1996 into 2007, Overbey stole about $4 million of client funds that he was supposed to invest. Instead, the money was used to pay earlier investors, cover his personal expenses, and pay off his gambling debts.

In July 2012, Overbey was indicted. He pleaded guilty to wire fraud felony charges last year. Overbey reportedly told a doctor that many of his brokerage clients were fellow gamblers.

The Financial Industry Regulatory Authority barred him from the industry in 2007. Ameriprise fired him. It has since paid back the clients that were affected by Overbey’s fraud.

Insurance Agents Face SEC Charges Alleging Elder Financial Fraud
The U.S. Securities and Exchange Commission is charging four insurance agents over their involvement in a multi-million dollar securities fraud that targeted senior investors. The elder financial fraud charges come almost a year after the regulator filed charges against Gary C. Snisky for orchestrating the scheme and bringing in insurance agents to solicit investors.

The financial scam raised about $4.3 million over 18 months. Now, the SEC is going after insurance agents Kenneth C. Meissner, Mark S. Tomich, James Doug Scott, and David C. Sorrells for soliciting funds even though they weren’t registered as a broker-dealer with the Commission.

The fraud primarily targeted annuity holders that were retired. The insurance agents sold interests in Arete LLC, which Snisky controlled. Investors were purportedly told that their money would be used to buy discounted agency bonds that were backed by the government. Instead, Snisky misappropriated about $2.8 million of their money.

Microcrap Fraud Probe Leads to Trading Suspension in Nine Penny Stocks
The SEC has suspended trading in nine penny stocks. The move is an effort to battle microcap fraud. The affected companies include Xumanii International Holdings Corp., All Grade Mining Inc., Solar Thin Films Inc., Global Green Inc., Bluforest Inc., mLight Tech Inc., DHS Holding Co., Inova Technology Inc., and Essential Innovations Technology Corp.

The SEC can elect to suspend trading in a stock if it believes that doing so is necessary to protect investors and the public. The regulator typically cannot announce in advance that a suspension is in the works because this could hinder its investigative efforts.

Ex-Ameriprise adviser gets jail time for using client money to pay gambling debts, Investment News, October 7, 2014

SEC Charges Four Insurance Agents in Securities Fraud Targeting Elderly Investors, SEC, September 26, 2014

Penny Stocks Trading Suspension Order, SEC (PDF)


More Blog Posts:

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 7, 2014

Former Axa Advisors Broker Faces SEC Charges Over Alleged $1.5M Ponzi Scam, Stockbroker Fraud Blog, September 30, 2014

Shareholder’s $40B Class Action Securities Lawsuit Over AIG Bailout Goes to Trial, Institutional Investor Securities Blog, September 29, 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 29, 2014

SEC Approves FINRA Arbitration Fees, SRO Proposes Rule For CARDS

The U.S. Securities and Exchange Commission has approved a Financial Industry Regulatory Authority Inc. proposal to up the pay for arbitrators. The rule change will increase how much it will cost to file securities arbitration claims, as well as processing fees, surcharge, and hearing session fees for bigger cases.

The changes would only impact claims involving over $250,000, with fees per hearing session going up by $100 to $300 depending on how big the claim. Filing fees would go up 10% to 25%, again depending on the claim’s size.

FINRA has not upped its fees since 1999. Under the proposed rule, arbitrators of these larger cases would get paid $300 for every hearing session, while the chairman would get another $125 a day. With the proposal, the self-regulatory organization would be bringing in $4 million to $5.6 million annually.

For the most part, the securities industry has supported the proposal, which should hopefully improve the quality of the arbitration process at FINRA. The regulator said arbitrators have regularly complained about how much they were paid, even skipping or postponing their duties when other opportunities that paid more arose. The SRO is hoping the new fees will enhance its arbitration recruiting efforts.

Also, FINRA has just issued new guidelines for a proposed computerized method to keep track of transactions and balances in brokerage accounts. The system, known as CARDS, for the Comprehensive Automated Risk Data System, is supposed to allow the regulator to identify and quickly deal with suspect activity and high-risk areas that it can’t easily detect under its current programs for examination and surveillance.

CARDS would go into effect via two stages. The first one would mandate that clearing and carrying firms periodically turn in automated, standardized data about their records and books related to securities accounts, including those that they clear. Stage two would require fully disclosed introducing firms to turn in specific data elements that are account profile-related to FINRA. Customers’ personally identifiable information would not be included among this information.

CARDS will ultimately speed up the detection process via automation. With this system, the regulator hopes to be able to run computerized analytic checks at the over 4,000 broker-dealers it oversees. Some have expressed worry that CARDS and similar systems could make it easy for data thieves to access information about what investors are holding.

Commentators have until December 1 to chime in. The CARDS proposal is an update of an initial proposal that FINRA put out last year.

The regulator says that CARDS will cost between $8 million to $12 million over three years to develop its systems and technology. Costs to certain brokers to develop the system could run from $390K to $8.33 million. Brokers had expressed worry that the new system could be too expensive for them.

SEC signs off on Finra arbitration fee increases, Investment News, September 30, 2014

FINRA Solicits Comment on Proposed Rule to Implement CARDS, FINRA, September 30, 2014


MORE BLOG POSTS:
SEC News: Regulator to Review Rule Change on New Hire Background Checks, Prepares Mutual Fund Regulations, and is Defendant of Oxfam America Lawsuit, Institutional Investor Securities Blog, September 20, 2014

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud, Stockbroker Fraud Blog, September 19, 2014

FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 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 13, 2014

FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks

The Financial Industry Regulatory Authority has issued an enforcement action charging Feltl & Company for not notifying certain customers of the suitability and risks involving certain penny-stock transactions, as well as for failing to issue customer account statements showing each penny stock’s market value. The brokerage firm is based in Minneapolis, Minnesota.

FINRA claims that the firm failed to properly document transactions for securities that temporarily may not have fulfilled the definition of a penny stock and did not properly track penny-stock transactions involving securities that didn’t make a market.

Feltl made a market in nearly twenty penny stocks. The brokerage firm made $2.1 million from at least 2,450 customer transactions that were solicited in 15 penny stocks between 2008 and 2012. The SRO says it isn’t clear how much the firm made from selling penny stocks that it didn’t keep track of but that revenue from this would have been substantial.

Felt is settling the securities charges without denying or admitting to the claims. It said that after February 2012 it stopped recommending penny stocks and now doesn’t make a market in any penny stock. Customers, however, can trade in penny stocks if they are the ones that initiate the transaction.

Penny Stocks
These securities trade under $5 a share. Small companies that have low revenue are the ones that usually put them out. Penny stocks may be high risk because it can be hard to track the companies’ future value and business potential and these stocks don’t trade as often as liquid stocks that are traded on exchanges. Penny stocks are not a suitable investment for everyone.

Our penny stock fraud lawyers represent investors wanting to recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra Fines Brokerage $1M Over Penny-Stock Deals, WSJ, September 3, 2014

Penny Stock Rules, SEC.gov


More Blog Posts:
SEC Files Charges in Penny Stock Scams, Stockbroker Fraud Blog, May 27, 2014

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

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 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 19, 2014

FINRA Investor Alert Warns About Scams Touting Ebola Cure and Other Viral Disease Stock Schemes

The Financial Industry Regulatory Authority has put out an investor alert warning against buying stocks in companies claiming to combat viral diseases. The self-regulatory organization says it knows of several possible schemes involving stock promotions employing tactics such as pump-and-dump scams to inflate share prices. The scammers will then sell their shares at a profit while leaving investors with shares that have lost their value.

Intensified news coverage of the recent Ebola and Middle East Respiratory Syndrome outbreak will likely have attracted the attention of stock scammers wanting to take advantage of people’s fears. To avoid falling victim to a viral disease stock scam, FINRA is offering several tips, including:

• Be wary of promotional materials, correspondence, and press releases from senders you don’t know. Watch out for communications that say little about the risks involved while only touting the positives. Getting a barrage of information about the same stock opportunities can also be a red flag.

• Make sure to know who is behind a company you are thinking of investing in. Do your research. Think twice if company officials have past criminal records or you hear anything negative in the news. Be on the look out for fake business addresses and phone numbers.

• A lot of stock pump-and-dump scams don’t trade on the NYSE or other registered national securities exchanges. Instead, you can find them on OTC quotations platforms or alternative trading systems.

• Find out whether the company submitted an SEC filing. Compare the information there with what’s provided in promotional materials and other communications you’ve received. Watch out for solicitations to get you to invest in products that are still being developed or if there are losses on balance sheets.

• Watch out if a company keeps changing its name or business focus.

• Make sure you read the fine print and be wary when name-dropping is used to gain investor confidence or boost legitimacy.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm. Contact our fraud lawyers today to request your free case consultation.

Viral Disease Stock Scams: Don’t Let Them Infect Your Portfolio, FINRA

Investment scammers busy pumping Ebola stocks amid panic, NY Post, August 14, 2014


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

SEC Charges Linkbrokers Derivatives in $18M Securities Fraud, Institutional Investor Securities Blog, August 18, 2014

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds, Stockbroker Fraud Blog, August 15, 2014

August 14, 2014

Former MIT Professor and His Son Plead Guilty to $140M Hedge Fund Fraud

Gabriel Bitran, an ex- Massachusetts Institute of Technology professor, and his son Marco Bitran have pled guilty to securities fraud charges accusing them of bilking investors of $140 million. Through their company, GMP Capital Management, the father and son placed investor money in hedge funds linked to Bernard Madoff, who ran the Ponzi scam that defrauded clients of billions of dollars.

According to prosecutors, from 2005 to 2011 Bitran and Marco collected $500 million from investors by promising to invest their funds using an original complex mathematical trading model. The money was supposed to go into exchange-traded funds and other securities but were instead placed in hedge funds.

When the financial crisis of 2008 happened, a number of the hedge funds got into trouble. Some of their investors lost up to 75% of their principal.

The Bitrans allegedly took out around $12 million of their own money from the hedge funds but made customers wait to redeem their funds from GMP Capital Management. (In 2011, the firm name was changed to Clearstream Investments LLC.) The two of them paid themselves millions of dollars in management fees.

The father and son are accused of lying to investors by telling them that they had delivered average yearly returns of 16-23% over eight years. The U.S. Attorney said that e-mails between the Britans show evidence of this. They also purportedly made false statements to the U.S. Securities and Exchange Commission during its related investigation.

In that civil probe, the Bitrans consented to settle the hedge fund fraud charges by paying $4.8 million. The two did not deny or admit wrongdoing. They did, however, agree to an industry bar.

If the judge accepts their plea deal in the criminal securities case, the Britans are facing up to five years behind bars and then supervised release. They would have to pay back $10 million in profits.

Ex-MIT official and son plead guilty to securities fraud, Boston.com, August 12, 2014

Ex-MIT dean, son plead guilty to hedge fund scam, CNN, August 12, 2014


More Blog Posts:

LPL Financial to Pay Illinois $2 Million Fine Related to Variable Annuity Exchanges, Stockbroker Fraud Blog, August 13, 2014

SEC Tells J.S. Oliver Capital to Pay $15M for Alleged Cherry-Picking Scam, Stockbroker Fraud Blog, August 11, 2014

Kansas Settles SEC Charges Over Allegations it Misled Investors about Risks in Muni Bond Offerings Totaling $273 Million, Stockbroker Fraud Blog, August 11, 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

July 1, 2014

Broker Fraud: Ex-Investors Capital Rep. is Indicted in Ponzi Scheme, Credit Suisse Sues Two Ex-Brokers Over Client Data Theft, and SEC Files More Insider Trading in IBM-SPSS Acquisition

Ex-Investors Capital Rep. Charged in $2.5M Ponzi Scam
Patricia S. Miller, a former Investors Capital Corp. representative, has been indicted on charges that she ran a $2.5 million investment fraud. She is accused of promising clients high yields for placing funds in “investment clubs.” Miller allegedly took this money and either gambled it away or used it to pay for her own spending.

According to prosecutors in Massachusetts, alleged fraud took place from 2002 through May 2014. Investors Capital fired Miller last month. Her BrokerCheck Report notes that the independent broker-dealer let her go because she allegedly misappropriated funds, borrowed client money, generated false documents, and engaged in “fraudulent investment activity.” Miller is charged with five counts of wire fraud.

Credit Suisse Sues Former Advisers For Allegedly Stealing Client Data
Credit Suisse Securities (CS) is suing John Delehanty and David Starker for violating their non-solicitation agreements when leaving the firm. The firm is accusing the men of taking client lists and sending confidential information to their personal accounts before going to work with J.P. Morgan Securities (JPM). The firm has also filed a claim with FINRA seeking damages.

In dispute was a contact list consisting of about 3,00 names that Starker sent from his Credit Suisse work e-mail account to his personal one. The list included notes about prospective clients. Delehanty is also accused of sending confidential client information to his personal e-mail account.

Under the Protocol for Broker Recruiting, which has been signed by about 1,100 brokerage firms, a broker is not subject to litigation when recruited to another firm as long as they bring just a spreadsheet that contains only certain client data, such as phone numbers and names. Anything more is considered a violation. However, this can be undone if the broker gives back the information when resigning. Credit Suisse said that Delehanty and Starker did not answer request by the firm to follow this protocol.

SEC Files More Insider Trading Charges in IBM-SPSS Acquisition
The Securities and Exchange Commission is charging two more brokers with insider trading prior to IBM’s acquisition of SPSS Inc. in 2009. Ex-representatives Daryl M. Payton and Benjamin Durant III allegedly traded illegally on the information that the deal was going to happen. They got the tip from another broker, Thomas C. Conrad.

Now, the regulator wants ill-gotten gains of about $300,000 returned, along with financial penalties, interest, and permanent injunctions. The U.S. Attorney’s Office for the Southern District of New York has filed a parallel action against the two men.

The SEC had previously filed insider trading charges against Conradt and David J. Weishaus, also a broker and tippee. They got the information from Conradt’s roommate, research analyst Trent Martin, who received the data from an attorney who worked on the deal. The three men have settled with the SEC. They entered guilty pleas in their criminal cases.

SEC Charges Former Brokers with Trading Ahead of IBM-SPSS Acquisition, SEC, June 25, 2014

Ex-Credit Suisse brokers sued over alleged theft of client data, InvestmentNews, June 30, 2014

Advisor Indicted In Long-Running Ponzi Scheme, FA-Mag, June 30, 2014


More Blog Posts:
Ponzi Scams: FINRA Bars Ex-Raymond James Broker Over $3M Ponzi Scam, Expels Success Trade Securities, Inc. for Bilking NFL and NBA Players, Stockbroker Fraud Blog, June 27, 2014

BNP Pleads Guilty to Criminal Charges Over Sanctions Violations, Pays $8.8B Fine, Institutional Investor Securities Blog, June 30, 2014

Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud, February 22, 2014

May 6, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales

Morgan Stanley Smith Barney LLC (MS) will pay a $5 million fine for supervisory failures involving its advisors soliciting shares in 83 IPOs to retail investors. The Financial Industry Regulatory Authority says that the firm lacked the proper training and procedures to make sure that salespersons knew the difference between “conditional offers” and “indications of interest."

By settling, Morgan Stanley is not denying or admitting to the securities charges. It is, however, consenting to the entry of findings by FINRA.

FINRA believes these issues are related to Morgan Stanley’s acquisition of Smith Barney from Citigroup (C) a couple of years ago. In addition to inheriting more high net worth clients, the SRO contends that Morgan Stanley ended up with financial advisers who might not have gotten the needed training.

Firms are allowed to solicit for “indications of interest” in an initial public offering before the registration statement becomes effective. These are not binding and may only lead to the purchase of shares if the investor reconfirms the intent to buy after the date that the statement went into effect. As for “conditional offers to buy,” these can result in a binding deal after the date that the statement becomes effective as long as the investor doesn’t do anything to rescind it before the firm accepts.

FINRA says that beginning in February 2012, Morgan Stanley put into place a policy in which these two terms were used interchangeably and without appropriate consideration for whether the customer needed to confirm its interest prior to the execution of a sale. The SRO claims that the financial advisers did not get the training or materials they needed to make sure the policy was clear to them. Because of these violations, customers and staff may not have properly comprehended which commitment was solicited.

The SRO is accusing Morgan Stanley of failing to properly monitor compliance and not installing procedures to ensure that conditional offers were solicited in a way that met FINRA rules and federal securities law requirements. The supervisory failures purportedly continued through May 1, 2013. Some of the shares were even sold via social media, including Yelp and Facebook.

Read FINRA's Action to Morgan Stanley (PDF)

Finra Fines Morgan Stanley $5 Million Over IPO Rules, The Wall Street Journal, May 6, 2014


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

Merrill Lynch, Morgan Stanley Call A Broker Recruiting Truce
, Stockbroker Fraud Blog, October 26, 2013

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014

April 30, 2014

SEC Files Fraud Charges Against American Pension Services and Its Founder Over $22M Investor Losses

The Securities and Exchange Commission has filed charges against American Pension Services Inc., a third-party administrator of retirement plans based in Utah and its founder Curtis L. DeYoung. The regulator says that they caused clients to lose about $22 million in risky investments involving certain business ventures. American Pension Services is now under receivership.

The securities scam allegedly goes back at least to 2005. Customers with retirement accounts containing non-traditional assets usually not found via IRA custodians, such as traditional (401)K retirement plans, were targeted. The Commission says that APS and DeYoung solicited customers to set up self-directed IRA accounts with third party administrator. DeYoung purportedly said this was “genuine self-direction” for investors seeking other options besides stocks, mutual funds, and bonds.

These clients had to fill out IRS Form 5305-A, which say that a third-party administrator doesn’t have discretionary authority over assets and it is up to the depositor to direct the assets’ investments. Although clients’ funds were kept at a bank in two master trust accounts, the complaint claims that APS controlled the money and mixed clients’ money together.

Even though APS was not allowed to direct client trades, DeYoung is said to have used letters with forged signatures that gave him permission to invest for clients. The SEC believes that clients were sent inaccurate account statements in 2012 and 2013, and some were told that at the end of 2012 master trust accounts contained $45.9 million when really that balance was at around $23.8 million. (In 2013, account statements noted that these accounts held $57.3 million when really they contained $22.7 million.) Client fees were calculated according to the inflated figures in customer account statements.

Meantime, customer funds were placed in risky business ventures involving friends of DeYoung. Even after a friend defaulted on promissory notes that DeYoung is said to have recommended to investors, he allegedly kept referring APS clients and their money to that person until a year ago. He also caused customers to think that their investments were profitable. DeYoung is accused of giving his friend the cash, which was issued to clients as bogus principal payments and interest.

Some of these business ventures failed or went bankrupt, allegedly causing APS clients to suffer losses. Among the investments are entities that are currently subject of SEC enforcement cases. SEC Salt Lake Regional Office director Karen Martinez, because of the alleged misconduct, the retirement security for thousands of investors was “jeopardized.”

If you are a senior investor, a retiree, or another customer who sustained losses because of the negligence of your investment representative, contact our securities lawyers today. Your initial case assessment is free.

Read the SEC Complaint (PDF)

SEC hits American Pension Services and its founder with fraud charges, Investment News, April 30, 2014


More Blog Posts:
Charles Schwab’s Barring of Customers from Joining Class Actions Violated FINRA Rules, Says Board of Governors, Stockbroker Fraud Blog, April 25, 2014

Ex-Sentinel CEO is Convicted of $500M Fraud, Stockbroker Fraud Blog, April 25, 2014

Institutional Investors Sue BP for Securities Fraud
, Stockbroker Fraud Blog, April 21, 2014

April 24, 2014

Ex-Sentinel CEO is Convicted of $500M Fraud

Eric Bloom, the CEO of Sentinel Management Group, Inc., the now bankrupt hedge fund, has been convicted of bilking over 70 customers of more than $500 million prior to the firm’s collapse. According to the U.S. Department of Justice, Bloom misappropriated securities that belonged to customers when he used the financial instruments as collateral to get a loan for Sentinel from Bank of New York Mellon Corp. (BK). The loan was partially used to buy risky illiquid securities for a trading portfolio to benefit Bloom, other Sentinel officers, corporations controlled by his family, and his relatives.

Also, says the DOJ, even though Bloom knew that Sentinel was at risk of defaulting on the loan from the bank, he caused the hedge fund to take over $100 million from customers while hiding its true financial state. A federal jury returned guilty verdicts against him on one count of investment adviser fraud and 18 counts of wire fraud.

The guilty verdict comes six months after Charles K. Mosley, Sentinel’s former head trader, pleaded guilty to two counts of investment adviser fraud related to the charges filed against Bloom. Mosely admitted to covering up their actions. In his plea agreement, he said that customers were sent statements according to interest income rates that he and Bloom had calculated rather than the performance of investment portfolios.

The SEC sued Sentinel in 2007, accusing the firm of transferring at least $460 million in securities from client funds and using the holdings of customers to get a $321 million credit line. Rather than disclosing that Sentinel was moving, comingling, and misappropriating assets, says the SEC, the firm issued regular account statements that showed no indication of the improper activities. As a result customers of Sentinel suffered undisclosed losses for months until they got a letter from the firm saying that the assets would have to be sold at discount and at a loss, supposedly because of the liquidity crisis.

In August, an appeals court judge Chicago said that BNY Mellon would have to face a lawsuit challenging its $312 million lien on assets of Sentinel. This reversed a district judge’s decision to uphold the lien. (The liquidation trustee had sued BNY Mellon to subordinate or disallow its lien claiming bank employees were aware that Sentinel was wrongly using the assets of investors as collateral as part of the hedge fund’s credit line.) In January, U.S. Bankruptcy Judge Jacqueline P. Cox said that BNY Mellon would have to give back the $337 million it received from Frederick Grede, the trustee liquidating Sentinel.

If you suspect your investment losses are a result of negligence or misconduct at the financial firm representing you, please contact our securities fraud lawyers today.

US Justice Department Convicts Hedge Fund CEO Of $500 Million Fraud, HedgeCo.Net, March 26, 2014

BNY Mellon Must Face Challenge to $312 Mln Sentinel Lien, Bloomberg, August 26, 2013

Sentinel trustee wants Bank of NY Mellon to return $337 million, Reuters, December 18, 2013


More Blog Posts:
Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements, Stockbroker Fraud Blog, June 13, 2012

Barclays Settles Two Libor-Related Securities Cases, Institutional Investor Securities Blog, April 16, 2014

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit, Institutional Investor Securities Blog, August 15, 2013