Articles Posted in SEC Enforcement

According to prosecutors, criminal charges have been brought against 14 people over their alleged involvement in a $14.7M investment scam that primarily targeted older investors. The US Attorney’s office alleges that between 1/2014 and 1/2017 the defendants and others sought to defraud the investors and prospective investors of certain companies by attempting to artificially manipulate the volume and price when shares were traded.

The group allegedly hid that they were behind the rigging of these companies’ shares through a pump-and-dump boiler room scam. They are accused of manipulating share trading pattens while aggressively soliciting senior citizens by phone to try and persuade them to buy the shares.

When their targets showed a willingness to buy the stock being solicited to them, the boiler room employees would allegedly pressure them to buy, sometime even charging them subscriptions so that they could receive future stock recommendations. Investors were not notified that the employees and others they conspired with had sold their own shares in these companies.
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Oil Well Company and Founders Accused In $2.4M Offering Fraud
The SEC has filed offering fraud-related charges against Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership, its founders, and three members of its sales team over a $2.4M offering fraud. According to the US Securities and Exchange Commission’s complaint, the oil well company fraudulently offered and sold unregistered securities to investors through a boiler room operation. They raised about $2.4M from 41 investors.

Carol J. Wayland and her son John C. Mueller founded K-T 50 Wells. They are accused of misappropriating investor funds for purposes not disclosed in the private placement memorandum, including taking more than $871K for their own expenses and making Ponzi payments to some investors.

Real Estate Agent Allegedly Sold Unregistered Securities as Part of Brother’s Ponzi Scam
Cheryl L. Jones is accused of defrauding investors by helping her brother, Mark Jones, recruit investors for his Ponzi scam. The Commission contends that Jones brought in associates and friends to buy unregistered promissory notes and personal guarantees that her brother was involved in.

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The US Securities and Exchange Commission has brought penny stock fraud charges against Diana P. Lovera, the ex-COO of Oxford City Football Club, Inc. Lovera faced criminal charges in a parallel case and she has already pleaded guilty to conspiracy to commit mail fraud and wire fraud.

According to the SEC’s Complaint, from about 7/2013 to 7/2015, Lovera and others at the penny stock company used a boiler room and exercised pressure tactics to raise about $6.6M from over 150 investors. They sold millions of unregistered Oxford City stock shares. Many of the investors involved were unaccredited.

The regulator is accusing Lovera of making misstatements about Oxford City’s assets, potential for profit, business plan, and management composition. She also allegedly falsely told potential investors that they could “lock in” a reduced share price by using Oxford City’s voice verification “system.” She touted the system as having the ability to link the personal information of investors to an SEC filing.

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Investment Advisory Firm Founder Gets 2-Year Prison Term, Will Pay $1.3M for Fraud
Michael J. Breton, a Massachusetts investment adviser, has been sentenced to two years behind bars for running a cherry picking scam that allowed him to bilk clients. Breton, the founder of Strategic Capital Management, admitted to keeping profitable trades for himself while making unprofitable ones for customers. Breton has been ordered to pay them $1.3M in restitution.

The cherry picking scheme went on for six years, bilking 30 investors. According to regulators and prosecutors, when certain companies were slated to announce earnings announcements, Breton would purchase securities through a master account or via block trading. When the earnings news would raise a stock’s price, Breton would keep the trades. When an earnings announcement would cause a stock’s price to go down,
he would disburse these trades to clients.

Jury Convicts Indiana Investment Advisor of Securities Fraud
This week in Pittsburgh, a jury convicted Bernard Parker of mail fraud, securities fraud, and of filing false tax returns. Parker, who was the principal of Parker Financial Services, is accused of bilking 22 clients of over $1.2M and falsifying his US tax returns by not including over $790K in income.

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Stock Promoters Accused in Pump-and-Dump Scam
The US Securities and Exchange Commission has filed fraud charges against James M. Farinella, his Integrated Capital Partners Inc., Anthony Amado, and his Equity Awareness Group with fraud over the alleged inflation and manipulation of a microcap company’s share price. As a result of the alleged pump-and-dump scam, the fraud made over $1M.

According to the regulator, Farinella and his consulting firm controlled almost the whole public float of stock in Pazoo Inc. Farinella paid Amado’s company to promote the microcap issuer and take part in matched trading to make it appear as if there was market activity for the stock. Amado and one of his employees, Carlo Palomino, are accused of enacting the scam, which allowed Farinella to make over $1M when dumping the Pazoo shares.

New Jersey prosecutors have filed criminal charges against Farinella over the microcap fraud allegations.

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In Kokesh v. SEC, the US Supreme Court has restricted the US Securities and Exchange Commission’s ability to pursue disgorgement after five years have passed since the fraud alleged led to illegal profits. In a unanimous decision, the nation’s highest court said that that the five-year statute of limitations must be followed.

The securities fraud lawsuit was brought by Charles Kokesh, who was convicted for misappropriating funds from four investment companies that he controlled and using the money to support his expensive lifestyle. In 2015, a judge ordered Kokesh to pay a $2.4M civil penalty.

Additionally, because the SEC considered disgorgement to have no statute of limitations, the judge also ordered the businessman to pay $35M. This is how much he was calculated to have illegally made starting from when he began engaging in his illegal conduct, from 1995 to 2009.
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Former Stifel, Nicolaus Broker is Accused of Variable Annuity Violations
The Financial Industry Regulatory Authority has suspended an ex-Stifel, Nicolaus (SF) broker for four months over variable annuity transactions that he purportedly inappropriately recommended to certain investors. At the time of the alleged variable annuity fraud, James Keith Cox worked with Sterne, Agee & Leach. Stifel Financial later acquired that firm.

According to the regulator, Cox recommended a number of VA transactions even though there was no reasonable grounds for thinking they were appropriate for the investors. In addition to the suspension, Cox will disgorge the $25,460 he was paid in commissions.

FINRA Bars California Man From Industry Over $100M in Undisclosed EB-5 Investment Sales
A FINRA hearing panels has barred a California-based registered representative for taking part in private securities transactions involving $100M in EB-5 Investments that he failed to disclose to his employer financial firm. Jim Seol sold the EB-5 investments through his business Western Regional Center Incorporated.

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SEC Charges Man Accused of Running $10M Ponzi Scam
Mark Anderson Jones, whom the US Securities and Exchange Commission has charged with fraud, has been sentenced to 70 months in prison in a parallel criminal case. Jones pleaded guilty to running a $10M Ponzi scam.

According to the SEC, Jones solicited investors in a number of US states, as well as in Washington DC. He did this by issuing promissory notes, as well as providing personal guarantees to clients that were willing to invest in The Bridge Fund, which supposedly lent money to Jamaican businesses that were waiting to get commercial bank loans.

However, rather than investing their money the way he said he would, Jones used a portion of investors’ cash to pay his own expenses as well as make Ponzi payments.

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Over the weekend, Yasuna Murakami, a Cambridge-Massachusetts based hedge fund manager, was arrested and charged with wire fraud. Murakami, who managed MC2 Capital Management LLC, is accused of misappropriating investors’ funds in a Ponzi-like scam. The arrest and criminal charges come a few months after the state’s regulator, Secretary of the Commonwealth William Galvin, filed his own administrative case against Murakami for the fraud.

Prosecutors are accusing the hedge fund manager of seeking to bilk investors. The MC2 Capital Canadian Opportunities Fund was supposed to grant American investors exposure to a Donville Kent Asset Management-supervised fund. Instead, Murakami allegedly misused investors’ money to pay for his bills, including purchases at expensive department stores, as well as to make his own investments in the fund.

He is accused of using investors’ money to pay other investors in two other MC2 hedge funds and allegedly misappropriating money from those funds. Under the charging statute, If convicted, Murakami could face up to 20 years in prison, supervised release, a fine, and be ordered to pay up to two times the gross loss or gain.

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Financial Firm and Its CEO Settle Life Settlement Fraud Charges
The US Securities and Exchange Commission announced that Verto Capital Management and its CEO William Schantz III have settled civil charges accusing them of running a Ponzi-like scam involving life settlements. As part of the settlement, Verto Capital and Schantz will pay over $4M.

According to the regulator’s complaint, the two of them raised about $12.5M through promissory note sales that were supposed to pay for the firm’s purchase and sale of life settlements. The notes were sold mostly through insurance brokers in Texas.

Investors who were religious were the main target of the alleged fraud.They were allegedly told that that the securities were short-term investments that were at low risk of defaulting.

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