Articles Posted in SEC

The US Securities and Exchange Commission has filed fraud charges against investment adviser Amrit J.S. Chahal, who founded Kane Capital investment Group, LLC. Chahal is accused of using his company to solicit about $1.4M from about 50 people, some of them friends and family members. Now, the regulator wants a permanent injunction, penalties, and disgorgement.

According to the SEC’s securities fraud complaint, from at least 2/2015, Chahal targeted prospective investor by telling him he was a seasoned trader who could make clients “above-market returns” by employing a trading strategy whose risks were low. In truth, contends the Commission, Chahal had no previous substantive experience in the securities industry or in trading securities for others.

Investors gave Chahal their money with the understanding that he would use the funds to buy and sell futures, options, and commodities. He told them they would have to pay a $2.5% yearly fee and a performance-based fee that was 10% of an investor’s returns that went beyond a yearly 30% return rate. Chahal also falsely claimed that Kane Capital employed the most current software to help it garner the “highest possible profit” from every investment, with a focus on choosing investments that were high-yield and low-risk. In truth, said the Commission, Chahal “traded risky options and margins,” as well as sold and purchased commodities and futures.

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In a Commodity Futures Trading Commission case, a judge has ordered former church Pastor Wesley Allen Brown, Edwards Rubin, and their Maverick International Inc. to pay approximately $8.6M combined in civil penalties and restitution. The defendants are accused of commodity pool fraud, commodity futures fraud, and federal commodity law violations.

A summary judgment order was also issued against Brown, who is serving time in prison for securities fraud and other offenses. Rubin is his brother-in-law and the president of Maverick.

According to the CFTC’s Complaint, issued in 2015, the defendants took part in a scam to solicit money for a supposed commodity pool trading futures contracts and precious metals. Brown is accused of abusing his position as pastor to influence church members to invest. Many of his targets were older investors/churchgoers. The regulator claims that the defendants misappropriated over $2M by soliciting the public for commodity futures contract trading.

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Fyre Festival Founder Pleads Guilty to Wire Fraud and Must Pay Back Investors
Billy McFarland, the founder of the failed Fyre Festival who pleaded guilty to two counts of wire fraud, must may pay back millions of dollars to investors whom he bilked. In Manhattan federal court, McFarland acknowledged that he received more than $26M in investor funds for the Bahamas festival that promised catered dining, luxury accommodations, and renowned performers. Instead, attendees were greeted with no food or tent accommodations.

Billboard reports that eventually prepackaged sandwiches were served, local musicians performed, and the festival was postponed even though it had already begun. Travelers who headed back home encountered rescheduled and delayed flights. Many festival employees went unpaid.

The FBI arrested McFarland last summer. He has since admitted that he solicited investors using bogus documents touting financial holdings that he didn’t possess.

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Direct Services LLC and Voya Investment LLC, two Voya Holdings Inc. investment adviser subsidiaries, will pay about $3.6M to settle Securities and Exchange Commission charges accusing them of failing to make certain disclosures related to securities lending. Of that amount, over $2M will go straight to mutual funds that were impacted.

The two investment advisers worked with a number of “insurance-dedicated mutual funds” that insurers affiliated with Voya Holdings and Direct Services offer to life insurance and annuity customers. The two advisers lent fund-held securities to certain parties. They then called back the securities so that the insurer affiliates would get a tax benefit. These same affiliates were record shareholders for the funds’ shares. Meantime, this led to the funds and their investors losing income while not getting to avail of the tax benefit.

According to SEC Enforcement Division Asset Management Co-Chief Anthony S. Kelly, the mutual funds and its investors were not notified that they would be losing money in order for the affiliates to get this tax benefit. The regulator said that Voya advisors did not disclose that this conflict of interest existed.

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The US Securities and Exchange Commission has filed civil charges against Ameriprise Financial Services (AMP). The regulator is accusing the brokerage firm and investment adviser of recommending to retail retirement account customers that they purchase mutual fund shares that charged higher fees. Ameriprise purportedly failed to employ sales charge waivers when applicable.

The Commission’s order contends that the broker-dealer neglected to determine when certain retirement account customers qualified for mutual fund share classes that were not as costly. Instead, the firm would recommend and sell the more costly mutual fund shares even when the less pricey options were available. Ameriprise is accused of not letting these customers know that the firm would make more from the costly mutual fund shares even as their overall investment returns were harmed.

The SEC said that about 1,971 customer accounts paid nearly $1.8M in up-front sales fees that were not warranted, costlier ongoing fees, “contingent deferred sales charges,” and other expenses because of the way that Ameriprise handled the recommendation and sale of mutual funds to retirement account clients. The firm is cooperating with the regulator and has paid back customers that were affected with interest. Retirement account customers eligible for the less expensive mutual fund share classes have been moved to those classes free of charge.

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The US Securities and Exchange Commission has filed civil charges against Ameratex Energy, Inc., Lewis Oil Company, Lewis Oil Corp., their CEO Thomas Lewis, and ex-Ameratex President William Fort over their alleged involvement in an $11.7M Texas oil and gas offering fraud. The companies are based in Plano, Texas.

According to the regulator, the companies and the two men sold unregistered securities to more than 150 investors while making misleading statements about how the proceeds would be used. They also allegedly provided false information regarding prospect wells and sales commissions, as well as provided “false guarantees” regarding the lending out and mingling of funds.

The securities that they offered were not registered with the SEC. The individuals selling the investments were not licensed brokers or associated with brokers that were registered.

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SEC Accused Investment Adviser of Profiting from Cherry Picking
The US Securities and Exchange Commission has filed a civil fraud case against Strong Investment Management, which is a California-based investment adviser, and its president/owner Joseph B. Bronson. The regulator is accusing them of running a cherry picking scam that defrauded the firm’s clients.

The Commission contends that Bronson used Strong’s omnibus account to trade securities but would wait to see how they performed during the day before distributing them to certain client accounts. Meantime, Bronson purportedly made healthy profits at cost to clients by cherry picking the trades. He is accused of giving himself trades that were profitable while sending unprofitable ones to firm clients.

The SEC’s complaint contends that in Forms ADV, Bronson and Strong misrepresented trading and allocation practices by falsely stating that every trade would be allocated according to the terms of pre-trade allocation statements with no preference granted to any account. Bronson’s brother, ex-Strong chief compliance officer John B. Engebreston, is accused of not fulfilling his job by failing to make sure that Strong’s policies and procedures for trade allocation were followed. He also is accused of “repeatedly” ignoring “red flags” when it came to Strong’s allocation practices.

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SEC Accuses Atlanta Man of Misusing Over $1.2M in Investor Funds

In an enforcement action, the US Securities and Exchange Commission is accusing Timothy S. Batchelor of misusing over $1.2M in investor monies. The funds were supposed to go toward the development of a submarine vessel and to businesses involved in national security.

According to the regulator’s complaint, of the $2.4M that Batchelor raised from investors through the Specter Ventures Fund II, he improperly spent half of the money, including almost $250K to buy new cars and about $225K to cover student loans. He allegedly moved thousands of dollars in investor monies to his own relatives. Batchelor also is accused of trying to conceal his actions by faking a document that misrepresented unauthorized expenditures as a loan.

The Financial Industry Regulatory Authority is warning investors to watch out for financial schemes in which the fraudsters are pretending to be the self-regulatory organization. FINRA released its Investor Alert noting that there have been scammers using its FINRA logo and name. In some instances they are even forging the signature of FINRA president and CEO Robert W. Cook to try and solicit funds for fraudulent investments. Use of FINRA’s name appears to be geared toward making the scheme appear legitimate.

For example, an investor contacted the SRO to report one instance that purportedly involved the fraudster sending a letter that was supposedly from Cook and guaranteeing a proposed investment. The letter, however, had a number of errors, including mistakes involving FINRA’s name and its leadership titles. Another alleged fraud involved e-mail pitches, again purportedly from Cook. The correspondence told targets that their outstanding inheritance fund had been “approved for release.” They were instructed to go abroad (beyond the jurisdiction of US authorities or regulators) to obtain this money. Meantime, the targets were asked to share certain personal data.

A regulator imposter fraud might ask the victim to pay an advanced fee. In such scams, investors are asked to pay certain fees related to the purchase of stock shares that, in truth, are not doing well or are “virtually worthless.” However, upon sending the funds, investors rarely see the money returned to them or the funds that a stock buyback was supposed to render. The fraudster may even ask for more money.

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Businessman Settles SEC Case Over Immigrant Visa-Related Investor Scam
Ariel Quiros, a businessman accused of defrauding foreign investors seeking to earn US residency through the EB-5 Immigrant Investor Program, has agreed to the settle the Securities and Exchange Commission’s case against him. As part of the settlement, which a court still has to approve, Quiros will be held liable for over $81M in disgorgement of ill-gotten gains and a $1M penalty. He also has to forfeit about $417K.

Over 700 investors from at least 75 nations invested with Quiros. Their funds were supposed to go toward “construction projects at the Jay Peak Resort and a proposed (nearby) biomedical research facility,” said the SEC. Instead, contends the regulator, Quiros misused over $50M to buy another ski resort and pay for his own spending, including the purchase of two luxury condos. He also failed to direct about $30M to the construction projects, which was necessary for these investors to become US residents.

Now, Quiros must give up the two condos and the resort that he bought using investors’ funds, as well as surrender his ownership stake in Jay Peak and many other properties.

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