The Securities and Exchange Commission today charged a prominent Miami Beach-based businessman and philanthropist with fraud for orchestrating a $900 million offering fraud and Ponzi scheme.
The SEC alleges that Nevin K. Shapiro, the founder and president of Capitol Investments USA, Inc., sold investors securities that he claimed would fund Capitol’s grocery diverting business. Shapiro told investors that the securities were risk-free with rates of return as high as 26 percent annually. Instead, Shapiro was actually conducting a Ponzi scheme and illegally using investor money to pay for other unrelated business ventures and fund his own lavish lifestyle. When investors questioned Capitol’s business, Shapiro showed them fabricated invoices and purchase orders for nonexistent sales.
“Shapiro lured investors by falsely touting Capitol’s securities as a risk-free investment with extraordinarily high returns,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “He used his prominence and prestige to gain investors’ trust in funding Capitol’s grocery diverting business, but behind their backs he diverted their money to enrich himself.”
Grocery diverters like Capitol purchase lower-priced groceries in one region and resell them for a profit to another region where prices are higher. According to the SEC’s complaint, filed in U.S. District Court for the Southern District of Florida, Shapiro used his business relationships and word-of-mouth to solicit investors and sell them short-term promissory notes.
Wednesday, April 21, 2010
Monday, April 19, 2010
McGinn, Smith Charged By FINRA in Note Case
McGinn, Smith & Co., the longtime Albany brokerage that became entangled in the criminal trial of former state Senate Majority Leader Joseph Bruno, has been accused of securities fraud by the Financial Industry Regulatory Authority.
FINRA is the self-regulating body of the securities industry. It is independent of the Securities and Exchange Commission, which is the federal government's securities watchdog, and does not have criminal oversight.
FINRA filed a complaint against McGinn, Smith dated April 5 that allges that the brokerage sold tens of millions of dollars worth of unregistered securities to clients. The document was revealed today by FINRA.
The complaint also alleges that company officials, including president David L. Smith, and Chairman Timothy M. McGinn, falsified documents.
FINRA is the self-regulating body of the securities industry. It is independent of the Securities and Exchange Commission, which is the federal government's securities watchdog, and does not have criminal oversight.
FINRA filed a complaint against McGinn, Smith dated April 5 that allges that the brokerage sold tens of millions of dollars worth of unregistered securities to clients. The document was revealed today by FINRA.
The complaint also alleges that company officials, including president David L. Smith, and Chairman Timothy M. McGinn, falsified documents.
UBS Loses FINRA Arbitration over Principal Protected Notes
Swiss bank loses arbitration in flap over principal-protected notes issued by Lehman in '08
UBS AG, Switzerland's biggest bank, was ordered by a Financial Industry Regulatory Authority panel in New York to pay $432,000 to two brokerage clients who purchased securities backed by Lehman Brothers Holdings Inc.
The UBS clients bought principal- protected notes issued by Lehman in early 2008 which became almost worthless when Lehman filed for bankruptcy in September of that year, he said.
Finra's arbitration panel posted the decision, dated April 9, on its Web site. UBS was also ordered to pay the claimant's attorneys' fees of $53,000, plus other expenses.
UBS sold $1 billion of Lehman structured products to U.S. investors, according to the company.
UBS AG, Switzerland's biggest bank, was ordered by a Financial Industry Regulatory Authority panel in New York to pay $432,000 to two brokerage clients who purchased securities backed by Lehman Brothers Holdings Inc.
The UBS clients bought principal- protected notes issued by Lehman in early 2008 which became almost worthless when Lehman filed for bankruptcy in September of that year, he said.
Finra's arbitration panel posted the decision, dated April 9, on its Web site. UBS was also ordered to pay the claimant's attorneys' fees of $53,000, plus other expenses.
UBS sold $1 billion of Lehman structured products to U.S. investors, according to the company.
Saturday, April 17, 2010
Regions Morgan Keegan Under Fire, Regulators File Charges
Regions Financial Corp., struggling to turn a profit and so far unable to repay its government bailout loan, has a new headache: securities litigation.
The Birmingham, Ala., bank has been beset by massive losses from toxic commercial real-estate bets. Now it must contend with federal and state charges that brokerage subsidiary Morgan Keegan & Co. and two employees committed fraud in the pricing of several bond funds.
Those accusations add to a growing pile of legal action from investors and regulators, which could eventually cost the bank upwards of $1 billion at a time when it, like other regional banks, has been struggling with losses related to the financial crisis.
Federal and state regulators said they are seeking to recoup approximately $2 billion investors allegedly lost through fraudulent and reckless business practices. Mississippi, Alabama, Kentucky and South Carolina regulators joined the Financial Industry Regulatory Authority in filing fraud charges.
The fraud charges are "a serious event," said Chris Marinac, managing principal at FIG Partners, a bank-research firm in Atlanta. "The exposure" to eventual costs "could be all over the map," he said. "There's no telling what a judge and jury will do." He said the litigation could be one catalyst that eventually pushes Regions to sell itself.
The Birmingham, Ala., bank has been beset by massive losses from toxic commercial real-estate bets. Now it must contend with federal and state charges that brokerage subsidiary Morgan Keegan & Co. and two employees committed fraud in the pricing of several bond funds.
Those accusations add to a growing pile of legal action from investors and regulators, which could eventually cost the bank upwards of $1 billion at a time when it, like other regional banks, has been struggling with losses related to the financial crisis.
Federal and state regulators said they are seeking to recoup approximately $2 billion investors allegedly lost through fraudulent and reckless business practices. Mississippi, Alabama, Kentucky and South Carolina regulators joined the Financial Industry Regulatory Authority in filing fraud charges.
The fraud charges are "a serious event," said Chris Marinac, managing principal at FIG Partners, a bank-research firm in Atlanta. "The exposure" to eventual costs "could be all over the map," he said. "There's no telling what a judge and jury will do." He said the litigation could be one catalyst that eventually pushes Regions to sell itself.
Friday, April 16, 2010
SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages
The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.
The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."
Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."
The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.
The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."
Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."
The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.
SEC Accuses Goldman Sachs of Fraud In Connection with Bet Against Subprime
The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was faltering.
The Securities and Exchange Commission announced Friday civil fraud charges against the Wall Street powerhouse and one of its vice presidents. The agency alleges Goldman failed to disclose that one of its clients helped create — and then bet against — subprime mortgage securities that Goldman sold to investors.
Investors in the mortgage securities are alleged to have lost more than $1 billion, the SEC noted. The agency is seeking to recoup profits reaped on the deal.
The Goldman client implicated in the fraud is one of the world's largest hedge funds, Paulson & Co., which paid Goldman roughly $15 million for structuring the deals in 2007.
Goldman Sachs shares fell more than 12 percent after the SEC announcement, which also caused shares of other financial companies to sink. The Dow Jones industrial average fell more than 120 points in midday trading.
The civil lawsuit filed by the SEC in federal court in Manhattan was the government's most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession. The SEC's enforcement chief said the agency is investigating a wide range of practices related to the crisis.
The Securities and Exchange Commission announced Friday civil fraud charges against the Wall Street powerhouse and one of its vice presidents. The agency alleges Goldman failed to disclose that one of its clients helped create — and then bet against — subprime mortgage securities that Goldman sold to investors.
Investors in the mortgage securities are alleged to have lost more than $1 billion, the SEC noted. The agency is seeking to recoup profits reaped on the deal.
The Goldman client implicated in the fraud is one of the world's largest hedge funds, Paulson & Co., which paid Goldman roughly $15 million for structuring the deals in 2007.
Goldman Sachs shares fell more than 12 percent after the SEC announcement, which also caused shares of other financial companies to sink. The Dow Jones industrial average fell more than 120 points in midday trading.
The civil lawsuit filed by the SEC in federal court in Manhattan was the government's most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession. The SEC's enforcement chief said the agency is investigating a wide range of practices related to the crisis.
Thursday, April 15, 2010
SEC Moves to Halt Ponzi Scheme
The Securities and Exchange Commission today charged two individuals and the two entities that they operated out of Meredith, New Hampshire in connection with a fraudulent Ponzi scheme involving a purported private lending program. The Commission's complaint alleges that Scott D. Farah of Meredith, New Hampshire, and Donald E. Dodge of Belmont, New Hampshire, acting through their businesses, Financial Resources Mortgage, Inc. and C L and M, Inc., defrauded at least $20 million from at least 150 investors beginning as early as 2005.
The Commission's complaint, filed in the United States District Court for the District of New Hampshire, alleges that the scheme involved raising investor money to fund purported loans to specific real estate construction projects and other businesses. According to the Commission's complaint, Scott Farah and his mortgage brokerage company, Financial Resources Mortgage, Inc. offered investors annual returns of 12% to 20% and falsely represented to investors that invested monies would be segregated and invested in the specific project that the investors had agreed to fund. The complaint alleged that Donald Dodge and his unlicensed loan servicing company, C L and M, Inc., serviced all loans brokered through Scott Farah and Financial Resources Mortgage, Inc. In reality, according to the Commission's complaint, the Defendants did not segregate investor money and used it for a variety of purposes not authorized by the offering documents, including paying returns to earlier investors, paying personal expenses, paying operating expenses of Financial Resources Mortgage, Inc. and C L and M, Inc., and donating money to the Center Harbor Christian Church, a church founded and owned by Scott Farah's father, and of which Scott Farah was treasurer. The complaint names the church as a relief defendant, and seeks the return of investor funds diverted to it.
The Commission's complaint alleges that defendants Scott D. Farah and Financial Resources Mortgage, Inc. violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that Defendants Dodge and C L and M, Inc. violated Section 17(a) of the Securities Act of 1933 and violated, or in the alternative, aided and abetted Farah's and/or Financial Resources Mortgage, Inc.'s violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Commission seeks, among other relief, the entry of permanent injunctions, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against the defendants. The Commission also charged as a relief defendant the Center Harbor Christian Church and seeks from it disgorgement plus prejudgment interest of investor funds that were diverted to it.
The Commission's complaint, filed in the United States District Court for the District of New Hampshire, alleges that the scheme involved raising investor money to fund purported loans to specific real estate construction projects and other businesses. According to the Commission's complaint, Scott Farah and his mortgage brokerage company, Financial Resources Mortgage, Inc. offered investors annual returns of 12% to 20% and falsely represented to investors that invested monies would be segregated and invested in the specific project that the investors had agreed to fund. The complaint alleged that Donald Dodge and his unlicensed loan servicing company, C L and M, Inc., serviced all loans brokered through Scott Farah and Financial Resources Mortgage, Inc. In reality, according to the Commission's complaint, the Defendants did not segregate investor money and used it for a variety of purposes not authorized by the offering documents, including paying returns to earlier investors, paying personal expenses, paying operating expenses of Financial Resources Mortgage, Inc. and C L and M, Inc., and donating money to the Center Harbor Christian Church, a church founded and owned by Scott Farah's father, and of which Scott Farah was treasurer. The complaint names the church as a relief defendant, and seeks the return of investor funds diverted to it.
The Commission's complaint alleges that defendants Scott D. Farah and Financial Resources Mortgage, Inc. violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that Defendants Dodge and C L and M, Inc. violated Section 17(a) of the Securities Act of 1933 and violated, or in the alternative, aided and abetted Farah's and/or Financial Resources Mortgage, Inc.'s violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Commission seeks, among other relief, the entry of permanent injunctions, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against the defendants. The Commission also charged as a relief defendant the Center Harbor Christian Church and seeks from it disgorgement plus prejudgment interest of investor funds that were diverted to it.
Tuesday, April 13, 2010
WexTrust Capital's Steven Byers Pleads Guilty
One of the co-founders of WexTrust Capital, Steven Byers, pleaded guilty to charges stemming from his now defunct real estate investment company. Byers, 47, defrauded investors through a real estate fund sold as a private placement deal. Beginning in 2006, Byers lured investors into his fund with, among other things, false statements regarding his ownership of seven properties planned for lease to the US government. Despite promises that this money would be used to invest in real estate ventures, investors' money used on unrelated projects and redistributed to other investors. Given false information, WexTrust gained over 1,000 investors in the US and abroad, and eventually investors were collectively defrauded upwards $255 million. Byers now faces 12 ½ to 15 ½ years in federal prison when he is sentenced on September 13th.
Monday, April 12, 2010
San Diego Based Ponzi Scheme Snares Local Residents
Teresa Gonzalez doesn’t go to church anymore, embarrassed for herself and livid with the man who talked her and her husband into investing $82,500 in what federal authorities say is a Ponzi scheme.
Gonzalez was so impressed by the investment opportunity that she invited friends and family members to put their savings into Diversity Capital Investments, a Chula Vista firm that promised monthly returns of between 4 percent and 8.25 percent with low risk.
“I feel guilty and I hide from God,” said Gonzalez, whose losses led her to default on her four-bedroom home in San Ysidro and move into an RV on the edge of El Cajon. “I recruited my sister and my friends, and I wanted them to benefit like I was.”
Diversity Capital, Mexican affiliate Diversity Capital Bancorp de Mexico, Strong Capital Investments of Chula Vista and San Diego-based The Optimus Fund are at the heart of a Securities and Exchange Commission complaint that alleges the companies preyed on churchgoing Latino residents from San Diego, Imperial, Los Angeles and Orange counties, swindling them out of more than $14 million.
Investors from Mexico also have filed complaints against the companies in that country.
U.S. authorities say Damian Meneses, a Mexican citizen who spent time in Chula Vista, operated Diversity Capital and its Mexican affiliate. Edward Lantz Ferguson, formerly of Chula Vista, is president of Strong Capital. Joel Ley of Chula Vista operated The Optimus Fund, authorities said.
The SEC has charged the three men and the four companies with securities fraud and operating a Ponzi scheme. The number of victims reaches into the hundreds, said authorities, who would not estimate the total in San Diego County. At least 27 local investors continue to meet as a group to exchange details about their situations.
Gonzalez was so impressed by the investment opportunity that she invited friends and family members to put their savings into Diversity Capital Investments, a Chula Vista firm that promised monthly returns of between 4 percent and 8.25 percent with low risk.
“I feel guilty and I hide from God,” said Gonzalez, whose losses led her to default on her four-bedroom home in San Ysidro and move into an RV on the edge of El Cajon. “I recruited my sister and my friends, and I wanted them to benefit like I was.”
Diversity Capital, Mexican affiliate Diversity Capital Bancorp de Mexico, Strong Capital Investments of Chula Vista and San Diego-based The Optimus Fund are at the heart of a Securities and Exchange Commission complaint that alleges the companies preyed on churchgoing Latino residents from San Diego, Imperial, Los Angeles and Orange counties, swindling them out of more than $14 million.
Investors from Mexico also have filed complaints against the companies in that country.
U.S. authorities say Damian Meneses, a Mexican citizen who spent time in Chula Vista, operated Diversity Capital and its Mexican affiliate. Edward Lantz Ferguson, formerly of Chula Vista, is president of Strong Capital. Joel Ley of Chula Vista operated The Optimus Fund, authorities said.
The SEC has charged the three men and the four companies with securities fraud and operating a Ponzi scheme. The number of victims reaches into the hundreds, said authorities, who would not estimate the total in San Diego County. At least 27 local investors continue to meet as a group to exchange details about their situations.
Thursday, April 1, 2010
FINRA reconsiders role of industry arbitrators
U.S. securities regulator FINRA is reconsidering the mix of industry and public members in its arbitration panels while also taking actions to expand the pool of arbitrators, Chairman and Chief Executive Richard Ketchum told Reuters on Monday.
FINRA -- the Financial Industry Regulatory Authority -- is a regulator affiliated with the securities industry it monitors. Brokerage customers are required to bring their complaints before FINRA arbitration rather than through the courts.
Historically, those panels included one industry member and two "public" representatives. Currently, FINRA is running a pilot program which allows parties to choose whether to include an industry arbitrator or have three public members on their panel.
"I believe there are strong arguments for us to move to an environment where the parties can make a choice to only have public arbitrators," Ketchum said at the Reuters Global Exchanges and Trading Summit in New York.
FINRA -- the Financial Industry Regulatory Authority -- is a regulator affiliated with the securities industry it monitors. Brokerage customers are required to bring their complaints before FINRA arbitration rather than through the courts.
Historically, those panels included one industry member and two "public" representatives. Currently, FINRA is running a pilot program which allows parties to choose whether to include an industry arbitrator or have three public members on their panel.
"I believe there are strong arguments for us to move to an environment where the parties can make a choice to only have public arbitrators," Ketchum said at the Reuters Global Exchanges and Trading Summit in New York.
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