The Securities and Exchange Commission today announced fraud charges, an asset freeze and other emergency relief against Robert Stinson, Jr., of Berwyn, Pennsylvania, and several Philadelphia-area entities he controlled, with perpetrating an offering fraud and Ponzi scheme in which at least $16 million was raised from more than 140 investors.
According to the SEC's complaint, from at least 2006 through the present, Stinson, primarily through Life's Good, Inc. and Keystone State Capital Corporation, two companies he controlled, sold purported "units" in four Life's Good private real estate hedge funds. ("Life's Good Funds"). Stinson falsely claimed that the Life's Good Funds generated annual returns of 10 to 16 percent by originating more than $30 million in commercial mortgage loans, and other investment income gained on the sale of foreclosure and investment properties. In reality, the SEC's complaint alleges that Stinson has been stealing investor funds for his personal use, transferring money to family members and others, and using new investor proceeds to make payments to existing investors in the nature of a Ponzi scheme.
Wednesday, June 30, 2010
SEC Charges California Telecommunications Company With FCPA Violations
The Securities and Exchange Commission today filed a settled federal court action against San Jose, Calif.-based telecommunications company Veraz Networks, Inc., alleging that Veraz violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA). The alleged violations stemmed from improper payments made by Veraz to foreign officials in China and Vietnam after the company went public in 2007.
The SEC alleges that Veraz engaged a consultant in China who in 2007 and 2008 gave gifts and offered improper payment together valued at approximately $40,000 to officials at a government controlled telecommunications company in China in an attempt to win business for Veraz. A Veraz supervisor who approved the gifts described them in an internal Veraz email as the "gift scheme." Similarly in 2007 and 2008, the SEC alleges that a Veraz employee made improper payments to the CEO of a government controlled telecommunications company in Vietnam to win business for Veraz.
The SEC alleges that Veraz engaged a consultant in China who in 2007 and 2008 gave gifts and offered improper payment together valued at approximately $40,000 to officials at a government controlled telecommunications company in China in an attempt to win business for Veraz. A Veraz supervisor who approved the gifts described them in an internal Veraz email as the "gift scheme." Similarly in 2007 and 2008, the SEC alleges that a Veraz employee made improper payments to the CEO of a government controlled telecommunications company in Vietnam to win business for Veraz.
Tuesday, June 29, 2010
SEC to Decide Fiduciary Standard
Legislators finally reached a compromise on the fiduciary standard bill late Thursday after fierce last-minute wrangling over its contents.
While the House’s version pushed for the Securities and Exchange Commission to create a fiduciary standard, the Senate preferred instead to have the SEC study differences between its fiduciary standard and the suitability standard many brokers are held to by FINRA, without giving the SEC the power to do anything about it.
The final bill contained elements of both—the SEC is charged with studying differences in fiduciary and suitability standards over the next six months, and then potentially create rules that fill any gaps, although the language of the bill doesn’t make this mandatory. Currently, registered investment advisors are held to a fiduciary standard under the Investment Advisers Act of 1940, whereas investment advisors who hold securities licenses report to FINRA, which requires advisor recommendations to be “suitable” to a client’s needs. RIAs have long complained that the suitability standard is not good enough and that anyone selling investment products should do so only when it is in a client’s best interests.
Banks, in particular, could be hurt by a blanket fiduciary standard, which could hypothetically put an end to platform programs if a new rule stipulated that investors pay a flat fee for anything they buy because many bank clients have fewer assets to invest. Heywood Sloane, managing director of the Bank Insurance and Securities Association notes that the bill’s current language suggests proprietary products, commissions and selected lists of products aren’t off the table, but he remains wary of what the SEC might decide. “As the SEC works through this, it has to allow people to provide services in a way that earns them a living,” he says. “If not, you’ll see only high-net-worth individuals taken care of because the margins will be too tight on smaller accounts.”
While the House’s version pushed for the Securities and Exchange Commission to create a fiduciary standard, the Senate preferred instead to have the SEC study differences between its fiduciary standard and the suitability standard many brokers are held to by FINRA, without giving the SEC the power to do anything about it.
The final bill contained elements of both—the SEC is charged with studying differences in fiduciary and suitability standards over the next six months, and then potentially create rules that fill any gaps, although the language of the bill doesn’t make this mandatory. Currently, registered investment advisors are held to a fiduciary standard under the Investment Advisers Act of 1940, whereas investment advisors who hold securities licenses report to FINRA, which requires advisor recommendations to be “suitable” to a client’s needs. RIAs have long complained that the suitability standard is not good enough and that anyone selling investment products should do so only when it is in a client’s best interests.
Banks, in particular, could be hurt by a blanket fiduciary standard, which could hypothetically put an end to platform programs if a new rule stipulated that investors pay a flat fee for anything they buy because many bank clients have fewer assets to invest. Heywood Sloane, managing director of the Bank Insurance and Securities Association notes that the bill’s current language suggests proprietary products, commissions and selected lists of products aren’t off the table, but he remains wary of what the SEC might decide. “As the SEC works through this, it has to allow people to provide services in a way that earns them a living,” he says. “If not, you’ll see only high-net-worth individuals taken care of because the margins will be too tight on smaller accounts.”
Saturday, June 26, 2010
FINRA Panel Awards $21 Million to Bayou Creditors
A securities arbitration panel has ordered Goldman Sachs Execution & Clearing LP and Spear Leeds & Kellogg LP to pay nearly $21 million to unsecured creditors of the Bayou Group LLC, according to an award.
The Official Unsecured Creditors' Committee of Bayou Group LLC filed the case against the two units of Goldman Sachs Group Inc. (GS) in May 2008 alleging fraud, failure to investigate fraud, and fraudulent transfers related to the Bayou hedge funds. The funds were discovered to be a fraud, with Bayou's former chief executive, Samuel Israel III, pleading guilty in 2005 to defrauding clients out of more than $400 million.
A Financial Industry Regulatory Authority, or Finra, arbitration panel entered the award on Thursday. It didn't provide any reasoning for its decision. It found the two units jointly liable for the creditors' alleged damages. The sum reflected the full amount sought by the creditors, according to the award.
A Goldman Sachs spokesman said the company is disappointed with the award and is considering its options. A lawyer for the Bayou unsecured creditors didn't immediately return a call requesting comment.
The Official Unsecured Creditors' Committee of Bayou Group LLC filed the case against the two units of Goldman Sachs Group Inc. (GS) in May 2008 alleging fraud, failure to investigate fraud, and fraudulent transfers related to the Bayou hedge funds. The funds were discovered to be a fraud, with Bayou's former chief executive, Samuel Israel III, pleading guilty in 2005 to defrauding clients out of more than $400 million.
A Financial Industry Regulatory Authority, or Finra, arbitration panel entered the award on Thursday. It didn't provide any reasoning for its decision. It found the two units jointly liable for the creditors' alleged damages. The sum reflected the full amount sought by the creditors, according to the award.
A Goldman Sachs spokesman said the company is disappointed with the award and is considering its options. A lawyer for the Bayou unsecured creditors didn't immediately return a call requesting comment.
Friday, June 25, 2010
SEC halts alleged $34M Ponzi scheme
The government said Friday it obtained a court order to halt an alleged $34 million Ponzi scheme targeting federal employees and law enforcement agents nationwide with promises of safe investments in a nonexistent bond fund.
The Securities and Exchange Commission said the order issued Thursday by a federal judge in Miami also froze the assets of the estate of the late Kenneth Wayne McLeod, his consulting firm Federal Employee Benefits Group of Jacksonville, Fla., and an affiliated investment firm. The SEC alleged that McLeod and the firms defrauded an estimated 260 investors starting in 1988.
McLeod used their retirement savings to enrich himself and pay for lavish entertainment including yearly trips to the Super Bowl for himself and 40 friends, the SEC said in a civil complaint filed Thursday in federal court in Miami.
McLeod's estate, the retirement benefits consulting firm and the investment firm, F&S Asset Management Group, don't appear to be represented by an attorney, the SEC said. Representatives of the firms couldn't immediately be located for comment Friday.
The SEC alleged that McLeod lured many of the active and retired federal employees through retirement benefits seminars he put on at government agencies around the country. He promoted the security of the government bond fund but in fact never bought any bonds and used the money to run a Ponzi scheme, using new investors' money to pay earlier investors, according to the SEC.
Federal Employee Benefits Group provided investors with personalized retirement benefit analyses and offered the option of having F&S Asset Management manage their money, the SEC said. In addition to conventional investments offered through that firm, McLeod offered many investors guaranteed annual returns of 8 percent to 10 percent in a tax-free fund backed by government bonds, the agency said.
The Securities and Exchange Commission said the order issued Thursday by a federal judge in Miami also froze the assets of the estate of the late Kenneth Wayne McLeod, his consulting firm Federal Employee Benefits Group of Jacksonville, Fla., and an affiliated investment firm. The SEC alleged that McLeod and the firms defrauded an estimated 260 investors starting in 1988.
McLeod used their retirement savings to enrich himself and pay for lavish entertainment including yearly trips to the Super Bowl for himself and 40 friends, the SEC said in a civil complaint filed Thursday in federal court in Miami.
McLeod's estate, the retirement benefits consulting firm and the investment firm, F&S Asset Management Group, don't appear to be represented by an attorney, the SEC said. Representatives of the firms couldn't immediately be located for comment Friday.
The SEC alleged that McLeod lured many of the active and retired federal employees through retirement benefits seminars he put on at government agencies around the country. He promoted the security of the government bond fund but in fact never bought any bonds and used the money to run a Ponzi scheme, using new investors' money to pay earlier investors, according to the SEC.
Federal Employee Benefits Group provided investors with personalized retirement benefit analyses and offered the option of having F&S Asset Management manage their money, the SEC said. In addition to conventional investments offered through that firm, McLeod offered many investors guaranteed annual returns of 8 percent to 10 percent in a tax-free fund backed by government bonds, the agency said.
Tuesday, June 15, 2010
SEC Charges Perpetrators of $300 Million Ponzi Scheme Involving Purported Gold Mining Investments
The Securities and Exchange Commission today charged four Canadian men and two others living in Florida with perpetrating a $300 million international Ponzi scheme on investors in a purportedly successful gold mining operation.
The SEC alleges that Milowe Allen Brost and Gary Allen Sorenson of Calgary were the primary architects and beneficiaries of the scheme that persuaded more than 3,000 investors across the U.S. and Canada to invest their savings, retirement funds and even home equity. Brost and his sales team presented themselves as an independent financial education firm that had discovered profitable investment opportunities with companies involved in gold mining. They held seminars where they promised investors they could earn 18 to 36 percent annual returns by investing with these companies, and they claimed the investments were fully collateralized by gold.
Unbeknownst to investors, they were actually investing in shell companies owned or controlled by Brost or Sorenson. Investor funds were often transferred multiple times through numerous bank accounts held as far away as Asia, Europe and South America, and then ultimately used to make “interest payments” to investors, fund the few unprofitable companies that actually had operations, and personally enrich Brost, Sorenson and others involved in the scheme.
“Brost and Sorenson orchestrated a complex, far-reaching fraud disguised by a labyrinth of companies and foreign bank accounts they used to hide their misconduct from investors and law enforcement,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office.
The SEC alleges that Milowe Allen Brost and Gary Allen Sorenson of Calgary were the primary architects and beneficiaries of the scheme that persuaded more than 3,000 investors across the U.S. and Canada to invest their savings, retirement funds and even home equity. Brost and his sales team presented themselves as an independent financial education firm that had discovered profitable investment opportunities with companies involved in gold mining. They held seminars where they promised investors they could earn 18 to 36 percent annual returns by investing with these companies, and they claimed the investments were fully collateralized by gold.
Unbeknownst to investors, they were actually investing in shell companies owned or controlled by Brost or Sorenson. Investor funds were often transferred multiple times through numerous bank accounts held as far away as Asia, Europe and South America, and then ultimately used to make “interest payments” to investors, fund the few unprofitable companies that actually had operations, and personally enrich Brost, Sorenson and others involved in the scheme.
“Brost and Sorenson orchestrated a complex, far-reaching fraud disguised by a labyrinth of companies and foreign bank accounts they used to hide their misconduct from investors and law enforcement,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office.
Monday, June 14, 2010
Looks Like a Loss for Credit Sussie in Auction-Rate Securities Cases
Last month, a Financial Industry Regulatory Authority (FINRA) arbitration panel awarded $9.8 million to Catalyst Health Solutions in its auction-rate securities case against Credit Suisse Securities, meaning that more institutional investors are coming out on top in their cases involving auction-rate securities.
Catalyst Heath Solutions, which manages prescription drug benefits, is just one of many institutional investors to take legal action against Credit Suisse after the ARS market came to an abrupt standstill in February 2008. Following the market’s collapse, institutional and retail investors alike were left financially hammered, unable to liquidate their supposedly liquid investments.
Ultimately, regulatory settlements were reached with a number of broker/dealers that marketed and sold auction-rate securities to investors. Most of the agreements, however, benefited retail ARS holders, not institutional investors.
In 2009, another institutional investor, STMicroelectronics NV, also successfully won its case against Credit Suisse when a FINRA arbitration panel ordered the brokerage to pay STMicroelectronics NV more than $406 million to settle claims that it misled the semiconductor maker into buying auction-rate securities.
On May 27, 2010, FINRA again ruled in favor of an investor’s arbitration claim against Credit Suisse. This time, the panel found Credit Suisse liable to Luby’s Inc. Specifically, FINRA ordered Credit Suisse to buy back the auction-rate securities at par and to pay interest on them at the par purchase price of 6% per annum from and including May 29, 2010, through and including the date the award is paid in full. According to Luby’s Feb. 10, 2010, quarterly filing, the company held $7.1 million par value or $5.2 million fair value in auction-rate securities.
Catalyst Heath Solutions, which manages prescription drug benefits, is just one of many institutional investors to take legal action against Credit Suisse after the ARS market came to an abrupt standstill in February 2008. Following the market’s collapse, institutional and retail investors alike were left financially hammered, unable to liquidate their supposedly liquid investments.
Ultimately, regulatory settlements were reached with a number of broker/dealers that marketed and sold auction-rate securities to investors. Most of the agreements, however, benefited retail ARS holders, not institutional investors.
In 2009, another institutional investor, STMicroelectronics NV, also successfully won its case against Credit Suisse when a FINRA arbitration panel ordered the brokerage to pay STMicroelectronics NV more than $406 million to settle claims that it misled the semiconductor maker into buying auction-rate securities.
On May 27, 2010, FINRA again ruled in favor of an investor’s arbitration claim against Credit Suisse. This time, the panel found Credit Suisse liable to Luby’s Inc. Specifically, FINRA ordered Credit Suisse to buy back the auction-rate securities at par and to pay interest on them at the par purchase price of 6% per annum from and including May 29, 2010, through and including the date the award is paid in full. According to Luby’s Feb. 10, 2010, quarterly filing, the company held $7.1 million par value or $5.2 million fair value in auction-rate securities.
Friday, June 11, 2010
E*Trade Loses ARS FINRA Arbitration
A Financial Industry Regulatory Authority arbitration panel made the ruling on behalf of David and Amy Wechsler of New Jersey, who filed the case in 2009, seeking $1.3 million. Their allegations included misrepresentation, failure to disclose information and breach of fiduciary duty, according to the award.
E*Trade Securities is the retail brokerage unit of E*Trade Financial Corp. (ETFCD).
The Finra panel also awarded $53,000 in legal fees and a $17,000 reimbursement of expert witness fees to the customers, according to the award, entered by Finra on June 4.
E*Trade Securities is the retail brokerage unit of E*Trade Financial Corp. (ETFCD).
The Finra panel also awarded $53,000 in legal fees and a $17,000 reimbursement of expert witness fees to the customers, according to the award, entered by Finra on June 4.
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