Articles Posted in SEC Enforcement

The US Securities and Exchange Commission has filed civil charges against a former broker and investment adviser. According to the regulator’s investment adviser fraud complaint, Jay Costa Kelter defrauded three retirees of over $1.856M. Meantime, prosecutors in Tennessee have filed a criminal case against him related to one of the clients. A federal grand jury indicted him on multiple counts of wire fraud, mail fraud, and security fraud.

The SEC contends that from 9/2013 through last year, Kelter, who owns insurance and investment firm BEK Consulting Partners LLC (known in the past as Kelter & Company LLC), made misrepresentations to the older investors, whom he’d persuaded in 2013 to transfer their accounts to TD Ameritrade (AMTD) after he left his former employer. The former broker had access to their new accounts and was authorized to keep giving them investment advice and make trades on their behalf while, meantime, he allegedly used the funds for himself.

For example, Kelter is accused of misappropriating $1.467M from a 75-year-old widow who was nearly totally financial dependent on her investments by engaging in fraud and forgery. The SEC’s complaint said that the client had told him she was only interested in making conservative investments.

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In a subpoena enforcement action, the US Securities and Exchange Commission is ordering 235 LLCs in Colorado and Delaware to provide documents related to its probe into whether Woodbridge Group of Companies, LLC, a California-based real estate and investment company owned and run by its president Robert Shapiro, engaged in a $1B financial fraud. All of the entities, plus another LLC, are affiliated with Woodbridge. The regulator had subpoenaed the 236 of them for the documents in August. Only one LLC responded by the deadline.

Now, the Commission wants a federal district court to make the rest of the LLCs comply with the subpoenas. Meantime, Shapiro has invoked his Fifth Amendment right. However, he maintains that his company did not commit fraud.

SEC Has Been Probing Woodbridge Since 2016
For the past year, the regulator has been looking into looking into possible securities fraud by Woodbridge and others involving more than $1B that was provided by thousands of investors throughout the US. The alleged fraud may include unregistered securities sales, including securities sales by brokers who were not registered, and other fraud.

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Wedbush Securities Accused of Failing to Oversee Owner, Who May Have Cherry Picked Investments
The NYSE Regulation has filed a disciplinary case against Wedbush Securities Inc. accusing the firm of not properly overseeing the trading activities of firm owner and principal Edward Wedbush. According to the complaint, Mr. Wedbush, “actively” managed and traded in over 70 accounts and he had limited power over attorney over the accounts of relatives, friends, and some staff members. NYSE contends that he was never properly overseen, which increased the possibility of conflicts and manipulation, including cherry picking. For example, the regulator believes that the inadequate supervision of Mr. Wedbush gave him the “unchecked ability” to give the best trades to family members and himself because there was no system in place to make sure trades were fairly allocated.

Wedbush Securities has previously been subject to at least $4.1M over supervisory deficiencies. Last year, the Financial Industry Regulatory Authority ordered Mr. Wedbush to pay $50K for supervisory deficiencies involving regulatory filings. He also was suspended for 31 days from serving as a principal.

Wedbush Securities has been named in investor fraud complaints over the handling of their money.

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The US Securities and Exchange Commission has filed charges against investment adviser Tarek D. Bahgat for allegedly stealing $378K from clients. Bahgat is accused of misappropriating funds from seven investment advisory clients, most of whom were elderly investors.

According to the regulator, from December 2014 through September 2016, Bahgat, using the alias Terry Dean Bahgat, misappropriated the clients’ funds online and transferred the money to his own account and that of WealthCFO, which was the payroll and accounting company that he controlled. FINRA’s BrokerCheck database shows that Bahgat was working for two brokerage firms: Cambridge Investment Research and Gradient Securities. After exiting Gradient, he was a state-registered advisor and used the name WealthCFO Partners.

The SEC’s complaint claims that Bahgat would sometimes obtain the internet bill-paying privileges in some client accounts by pretending to be the client or having his assistant, Lauramarie Colangelo, pose as the client during phone calls with the brokerage firms that held the accounts. Colangelo was the operations manager of WealthCFO.

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Leonard Vincent Lombardo, a former broker once employed at Stratton Oakmont, is now charged by the US Securities and Exchange Commission, along with his company and business partner, with involvement in an alleged real estate investment scam that defrauded over 100 investors, including retirees, of $6M. Lombardo, his firm The Leonard Vincent Group (TLVG), and CFO Brian Hudlin have settled the SEC charges.

According to the regulator’s complaint, investors were told that their money would be placed in “distressed real estate” and their money would grow by over 50 percent within months when, in fact, the investments did not make real earnings.

For their investments, investors were given shares or units in an LVG fund. They were under the impression that the funds were to be pooled with other investors’ money and then, according to the strategies in the LVG Funds’ Private Placement Memoranda, collectively invested in the distressed real estate.

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The US Securities and Exchange Commission has filed civil charges against Michael Scronic, a New York-based investment adviser accused of defrauding retail investors in a $19M Ponzi scam. According to the regulator, beginning in 2010, Scronic raised funds from 42 friends and acquaintances for a “risky options trading strategy” involving the Scronic Macro Fund, a fictitious hedge fund in which he was supposedly selling shares. Many of the investors he approached were from the community where he lives. Their investments ranged from $23K to $2.4M.

The SEC contends that Scronic lied to them about his investing track record, claiming he had a long history of proven returns while touting that the investments he was selling were liquid and easily redeemable. In reality, claims the Commission, the investors’ money was draining away because of massive trading losses.

Scronic is accused of not segregating the funds according to investor and transferring their money into his personal brokerage account. His investment agreements with investors stipulated that their funds would be placed in a hedge fund, in which he would serve as acting investment adviser, and he would send them quarterly reports. Scronic also noted in these agreements that he had a fiduciary obligation to investors and would comply with all state and federal laws.

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The US Securities and Exchange Commission has secured a final judgment by default in its broker fraud case against Demitrios Hallas. The former broker was charged by the regulator in April for allegedly trading unsuitable investment products in five customers’ accounts. The customers were unsophisticated investors with not much, if any, experience in investing. Their net worth and income levels were modest enough that risky investments were not a good fit for their portfolios.

According to the regulator’s complaint, in a period of a little over a year, Hallas traded 179 daily leveraged exchange traded funds and exchange traded notes in these accounts. (Both ETFs and ETNs products are considered high-risk, volatile, and only suitable for sophisticated investors.)

The SEC said that Hallas had no reasonable grounds for recommending these investments to customers. Meantime, the latter were charged fees and commissions of about $128K. The net loss sustained over all the positions was about $170K.

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ServiceMesh Co-Founder Accused of Fraud
The US Securities and Exchange Commission has filed charges against Eric Pulier, the co-founder of ServiceMesh (SMI) and a former IT executive at Computer Sciences Corporation (CSC). According to the regulator, Pulier bilked CSC of $98M related to its acquisition of SMI.

The SEC contends that Pulier bribed an ex-Commonwealth Bank of Australia VP and another ex-bank executive so that Commonwealth would go into contracts with CSC that would allow SMI to get a $98M earn-out payment from the former as part of the acquisition. This meant that the contracts had to satisfy a $20M revenue threshold prior to a specific date.

Meantime, claims the SEC, Pulier was the recipient of more than $30M of that $98M because he was a majority SMI shareholder. He allegedly used a nonprofit to funnel more than $2.5M to the two ex-Commonwealth Bank of Australia as kickbacks.

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Former LPL Broker Indicted for $850K Securities Fraud and Theft
Sonya Camarco, an ex-LPL (LPLA) financial broker, has been indicted in Colorado on seven counts of theft and six counts of securities fraud. She is accused of taking over $850K in client funds for her own use between 1/2013 and 5/2017.

Camarco was fired by LPL last month. Her BrokerCheck record on the FINRA database indicate that she was let go for depositing third-party checks for clients into an account she controlled. Camarco is accused of failing to disclose to clients, including one elderly investor who had dementia, that she was depositing the funds in this manner. If this is true then not only is this a matter of financial fraud but also this would be a case of senior financial fraud.

Securities Fraud Involving Earth Energy Exploration Bilks Investors of $3M
In Indiana, fifteen people were convicted and ordered to prison in a securities fraud case involving Earth Energy Exploration Inc. Investors in Texas and other states lost $3M.

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The US Securities and Exchange Commission has filed civil charges against former Alexander Capital brokers who are accused of making unsuitable recommendations that garnered them commissions while causing investors to sustain significant losses. All three men, Rocco Roveccio, William Gennity, and Laurence Torres, are based in New York.

Because there are costs associated with each transaction for the customer, the security’s price has to go up significantly during the short time it is in an account for even the smallest profit to be made. Instead, eleven customers lost $683K while the NY brokers made $280K and $206K, respectively, in fees and commissions. Some of the investors they bilked had little education and/or were inexperienced investors. In the SEC’s complaint against Gennity and Roveccio, the brokers are accused of recommending investments that required the “frequent buying and selling of securities” despite a lack of reasonable grounds to think that this would make money for their customers.

The two men allegedly engaged in churning in customers’ accounts, unauthorized trading, and hiding material information from them, including that the transaction expenses (markups, commissions, markdowns, fees, postage, and margin interest ) for the investment recommendations would most likely exceed any possible profits.

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