FINRA Dispute Resolution has recently improved its Online Arbitration Claim Filing system. Any party may submit an arbitration claim using the online system. The online arbitration claim filing system is a fast, convenient, and efficient way to file an arbitration claim.
Note: As of September 25, 2010, claimants using the new Arbitration Online Claim Filing System form can pay the filing fees online by credit card. If you have a claim form already in progress prior to this date, you will NOT be able to use the new credit card payment feature. To be able to pay the filing fees by credit card, you would need to begin a new claim form that includes the new credit card feature.
With this enhancement, all parts of the initial claim (Statement of Claim, signed Submission Agreement, exhibits, and filing fees) can now be filed electronically. This will expedite the claim submission process and will set the date of filing to the date that the claim was submitted online.
Thursday, September 30, 2010
Sunday, September 26, 2010
SEC Commissioner Questions New Trading Rules
A commissioner at the U.S. Securities and Exchange Commission questioned on Friday the value of saddling high-frequency trading firms with tighter market-making rules, which has emerged as a key possible response to the May "flash crash."
Expanding the existing market-maker obligations to include the most active traders is seen as a way to ensure that these firms provide liquidity -- or the availability of buy and sell orders -- when markets plunge, helping to avoid a repetition of the May 6 breakdown.
Commissioner Troy Paredes, however, told a Security Traders Association conference that "the value of subjecting high-frequency traders to market-maker obligations is not self-evident" during times of stability.
"It would be unfortunate for investors if, as a result of burdening a wide swath of liquidity providers with new obligations, the quality of our markets actually deteriorated during the overwhelming majority of trading days when liquidity would be plentiful," Paredes said.
The commissioner, one of five at the SEC, also questioned whether high-frequency algorithmic trading firms would continue to trade in the rare times of market stress -- even if they were saddled with market-maker obligations that would in fact require them to participate.
Exchanges, under regulatory and public pressure, last week submitted proposals to the SEC that would force market makers to quote closer to the price of the stocks in which they are registered to supply buy and sell orders.
These rules could expand to include high-frequency firms, whose rapid-fire trading now accounts for about half of all U.S. equity volumes.
Expanding the existing market-maker obligations to include the most active traders is seen as a way to ensure that these firms provide liquidity -- or the availability of buy and sell orders -- when markets plunge, helping to avoid a repetition of the May 6 breakdown.
Commissioner Troy Paredes, however, told a Security Traders Association conference that "the value of subjecting high-frequency traders to market-maker obligations is not self-evident" during times of stability.
"It would be unfortunate for investors if, as a result of burdening a wide swath of liquidity providers with new obligations, the quality of our markets actually deteriorated during the overwhelming majority of trading days when liquidity would be plentiful," Paredes said.
The commissioner, one of five at the SEC, also questioned whether high-frequency algorithmic trading firms would continue to trade in the rare times of market stress -- even if they were saddled with market-maker obligations that would in fact require them to participate.
Exchanges, under regulatory and public pressure, last week submitted proposals to the SEC that would force market makers to quote closer to the price of the stocks in which they are registered to supply buy and sell orders.
These rules could expand to include high-frequency firms, whose rapid-fire trading now accounts for about half of all U.S. equity volumes.
Saturday, September 25, 2010
Federal Judge Accepts SEC Settlment with Citigroup
A federal judge said Friday that she would accept the $75 million settlement between the Securities and Exchange Commission and Citigroup over the bank’s failure to adequately disclose its exposure to subprime mortgage debt in 2007, The New York Times’s Edward Wyatt reports from Washington.
But Judge Ellen Segal Huvelle of Federal District Court for the District of Columbia told lawyers for the government that she wanted the S.E.C. to certify that the remedies Citigroup claimed to have put in place to prevent a similar failure were adequate and would remain for a given period of time.
The judge also directed that the settlement agreement be reworded to make clear that the $75 million would be used to compensate shareholders who suffered losses because of Citigroup’s misstatements, and she told the S.E.C. and the bank to return in two weeks with new language that did that.
But Judge Ellen Segal Huvelle of Federal District Court for the District of Columbia told lawyers for the government that she wanted the S.E.C. to certify that the remedies Citigroup claimed to have put in place to prevent a similar failure were adequate and would remain for a given period of time.
The judge also directed that the settlement agreement be reworded to make clear that the $75 million would be used to compensate shareholders who suffered losses because of Citigroup’s misstatements, and she told the S.E.C. and the bank to return in two weeks with new language that did that.
Friday, September 24, 2010
Securities and Exchange Commission v. M. Mark McAdams and R. Dane Freeman
The Securities and Exchange Commission ("Commission") announced that the Honorable Terry L. Wooten, United States District Judge for the District of South Carolina, entered an order permanently enjoining M. Mark McAdams ("McAdams"). The order restrained and enjoined McAdams from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. McAdams was also ordered to pay disgorgement, pre-judgment interest and a civil penalty in amounts to be resolved upon motion of the Commission at a later date, and directed that for purposes of that motion, the allegations of the Commission's Complaint shall be deemed true. McAdams consented to the entry of the order without admitting or denying the allegations of the Commission's Complaint.
The Complaint, filed on March 18, 2010, alleged fraud against McAdams and his co-defendant R. Dane Freeman ("Freeman") in connection with sales of securities interests in Global Holdings, a limited liability company organized by McAdams. Approximately $3.5 million was raised from investors during the first nine months of 2008. The Complaint alleged that McAdams and Freeman told investors orally and in writing that Global Holdings was "in the business of locating and securing high return investment opportunities for investors on international trading platforms." Most of the Global Holdings' investors executed a joint venture agreement that was prepared by McAdams and signed by either McAdams or Freeman. These joint venture agreements represented that Global Holdings would utilize those funds "for the purpose of buying and selling Standard and Poor's AAA or AA rated bonds and/or Medium Term Notes" on an "overseas trading platform." Some of the joint venture agreements stated that investors who invested $20,000 would receive $1,000,000 after 60 days, a return of 4,900%. At least one joint venture agreement stated that an investor's $500,000 would grow to $1,500,000 after 60 days, for a 200% rate of return. Most investors, if not all of them, never received either profits or a return of their principal. Instead, over $500,000 in investor funds were transferred to accounts controlled by Freeman and his family. McAdams received many questions about the high yield investment program from the outset, from investors and his own family members, to whom McAdams vouched for the existence and legality of the global trading platforms that supposedly would generate such outlandish returns. McAdams also misrepresented the success of the program. McAdams falsely misrepresented to a potential investor that Global Holdings had participated in hundreds of similar transactions that had already produced hundreds of millions of dollars for dozens of investors.
The Complaint, filed on March 18, 2010, alleged fraud against McAdams and his co-defendant R. Dane Freeman ("Freeman") in connection with sales of securities interests in Global Holdings, a limited liability company organized by McAdams. Approximately $3.5 million was raised from investors during the first nine months of 2008. The Complaint alleged that McAdams and Freeman told investors orally and in writing that Global Holdings was "in the business of locating and securing high return investment opportunities for investors on international trading platforms." Most of the Global Holdings' investors executed a joint venture agreement that was prepared by McAdams and signed by either McAdams or Freeman. These joint venture agreements represented that Global Holdings would utilize those funds "for the purpose of buying and selling Standard and Poor's AAA or AA rated bonds and/or Medium Term Notes" on an "overseas trading platform." Some of the joint venture agreements stated that investors who invested $20,000 would receive $1,000,000 after 60 days, a return of 4,900%. At least one joint venture agreement stated that an investor's $500,000 would grow to $1,500,000 after 60 days, for a 200% rate of return. Most investors, if not all of them, never received either profits or a return of their principal. Instead, over $500,000 in investor funds were transferred to accounts controlled by Freeman and his family. McAdams received many questions about the high yield investment program from the outset, from investors and his own family members, to whom McAdams vouched for the existence and legality of the global trading platforms that supposedly would generate such outlandish returns. McAdams also misrepresented the success of the program. McAdams falsely misrepresented to a potential investor that Global Holdings had participated in hundreds of similar transactions that had already produced hundreds of millions of dollars for dozens of investors.
SEC Investigates Vision Capital
In a wide-ranging investigation, the Securities and Exchange Commission issued subpoenas in the summer to several investment firms that have done business with New York-based Vision Capital, said people familiar with the inquiry.
The hedge fund invests mainly in private placements by small cash-strapped public companies.
The subpoenas sent out by the SEC's New York office seek emails, transaction documents and other communications between Vision Capital and the investment firms going back to early 2005 -- the hedge fund's first year in business. Reuters reviewed a copy of one of the subpoenas.
The focus of the SEC investigation is not clear. But people familiar with Vision, including investors and former employees, said regulators might be examining the methodology the hedge fund has used to put valuations on the equity stakes it has taken in hundreds of struggling small-cap companies.
Vision is led by Adam Benowitz and Randolph "Randy" Cohen, who have been friends since childhood. The pair picked the name Vision Capital because they each suffer from a significant visual impairment: Benowitz is blind in one eye, and Cohen has a degenerative eye disease.
Cohen, currently a visiting professor at the Massachusetts Institute of Technology's Sloan School of Management, was an associate professor of finance at Harvard Business School for nearly nine years.
Benowitz and Cohen caused a bit of a stir on Wall Street in fall 2008 when they considered offering a job to Stanley O'Neal, the former Merrill Lynch chief executive officer who was ousted from the investment firm at the beginning of the financial crisis.
The managers burst on the scene in 2005, when Vision posted a 105 percent gain. They followed that up with an even better 188 percent return in 2006.
But returns fell sharply in more recent years. And since last year, investors have been unable to pull money out of most Vision funds. The managers have told investors that it may be many years before they can redeem their money due to the illiquid nature of Vision's investments in all those small-cap companies, said people familiar with the firm.
Since opening for business, Vision Capital has invested some $266 million in 104 financing deals with small-cap companies, according to Sagient Research, a private placement tracking service.
These so-called PIPE deals, or private investments in public equity, are popular with hedge funds because buyers usually get preferred stock or bonds that convert into shares at discounted prices. The deals often include sweeteners, such as warrants, that permit the investors to buy additional shares at prices well below what ordinary investors would pay on a public market.
Many of the PIPE deals Vision invested were rich in warrants. Over the years, some in the hedge fund industry have criticized Vision's managers for putting too high a valuation on the warrants obtained in these financing transactions, given that many small companies doing PIPEs often falter.
The hedge fund invests mainly in private placements by small cash-strapped public companies.
The subpoenas sent out by the SEC's New York office seek emails, transaction documents and other communications between Vision Capital and the investment firms going back to early 2005 -- the hedge fund's first year in business. Reuters reviewed a copy of one of the subpoenas.
The focus of the SEC investigation is not clear. But people familiar with Vision, including investors and former employees, said regulators might be examining the methodology the hedge fund has used to put valuations on the equity stakes it has taken in hundreds of struggling small-cap companies.
Vision is led by Adam Benowitz and Randolph "Randy" Cohen, who have been friends since childhood. The pair picked the name Vision Capital because they each suffer from a significant visual impairment: Benowitz is blind in one eye, and Cohen has a degenerative eye disease.
Cohen, currently a visiting professor at the Massachusetts Institute of Technology's Sloan School of Management, was an associate professor of finance at Harvard Business School for nearly nine years.
Benowitz and Cohen caused a bit of a stir on Wall Street in fall 2008 when they considered offering a job to Stanley O'Neal, the former Merrill Lynch chief executive officer who was ousted from the investment firm at the beginning of the financial crisis.
The managers burst on the scene in 2005, when Vision posted a 105 percent gain. They followed that up with an even better 188 percent return in 2006.
But returns fell sharply in more recent years. And since last year, investors have been unable to pull money out of most Vision funds. The managers have told investors that it may be many years before they can redeem their money due to the illiquid nature of Vision's investments in all those small-cap companies, said people familiar with the firm.
Since opening for business, Vision Capital has invested some $266 million in 104 financing deals with small-cap companies, according to Sagient Research, a private placement tracking service.
These so-called PIPE deals, or private investments in public equity, are popular with hedge funds because buyers usually get preferred stock or bonds that convert into shares at discounted prices. The deals often include sweeteners, such as warrants, that permit the investors to buy additional shares at prices well below what ordinary investors would pay on a public market.
Many of the PIPE deals Vision invested were rich in warrants. Over the years, some in the hedge fund industry have criticized Vision's managers for putting too high a valuation on the warrants obtained in these financing transactions, given that many small companies doing PIPEs often falter.
Wednesday, September 22, 2010
SEC Charges Minneapolis Attorney And San Francisco Real Estate Lending Fund Promoters With Misleading Investors
The Securities and Exchange Commission announced that on September 21, 2010, it charged a Minneapolis attorney and two San Francisco-area real estate lending fund promoters with defrauding investors in a Minneapolis-based real estate lending fund by concealing the collapse of the fund's sole business partner.
The SEC's complaint, filed in federal court in Minneapolis, alleges that Todd A. Duckson, of Prior Lake, Minnesota, Michael W. Bozora, of Belvedere, California, and Timothy R. Redpath, of Mill Valley, California, raised more than $21 million from investors in the Capital Solutions Monthly Income Fund after the fund's sole business partner defaulted on its obligations to the fund. The SEC alleges that after this May 2008 default, the fund — whose sole business was to make real estate loans to a single borrower — had no meaningful income and was using new investor funds to pay existing investors.
According to the SEC's complaint, Bozora and Redpath launched the fund in 2004 and, through August 2009, raised approximately $74 million from approximately 450 investors from across the U.S. After the May 2008 default by the fund's sole borrower, the fund foreclosed on the borrower's real estate projects. The SEC alleges that in late 2008, Bozora and Redpath asked Duckson, who was acting as the fund's outside counsel, to take over managing the fund. The SEC alleges that Duckson then began managing the fund while Bozora and Redpath continued to raise money from new investors. The SEC alleges that Bozora, Redpath, and Duckson failed to disclose the default and foreclosure to investors for several months. The SEC alleges that Bozora, Redpath, and Duckson eventually made some disclosure of the default and foreclosure, but they minimized the impact of these events and misleadingly promoted the fund's ability to make new loans.
The SEC's complaint, filed in federal court in Minneapolis, alleges that Todd A. Duckson, of Prior Lake, Minnesota, Michael W. Bozora, of Belvedere, California, and Timothy R. Redpath, of Mill Valley, California, raised more than $21 million from investors in the Capital Solutions Monthly Income Fund after the fund's sole business partner defaulted on its obligations to the fund. The SEC alleges that after this May 2008 default, the fund — whose sole business was to make real estate loans to a single borrower — had no meaningful income and was using new investor funds to pay existing investors.
According to the SEC's complaint, Bozora and Redpath launched the fund in 2004 and, through August 2009, raised approximately $74 million from approximately 450 investors from across the U.S. After the May 2008 default by the fund's sole borrower, the fund foreclosed on the borrower's real estate projects. The SEC alleges that in late 2008, Bozora and Redpath asked Duckson, who was acting as the fund's outside counsel, to take over managing the fund. The SEC alleges that Duckson then began managing the fund while Bozora and Redpath continued to raise money from new investors. The SEC alleges that Bozora, Redpath, and Duckson failed to disclose the default and foreclosure to investors for several months. The SEC alleges that Bozora, Redpath, and Duckson eventually made some disclosure of the default and foreclosure, but they minimized the impact of these events and misleadingly promoted the fund's ability to make new loans.
Tuesday, September 21, 2010
SEC Charges California lawyer for role in investment scheme
The Securities and Exchange Commission ("Commission") announced that it charged a California lawyer, George Gustav Bujkovsky, age 67, of Escondido, California, for his role in perpetrating a phony investment pool scheme directed by his clients.
The Commission's complaint, filed September 21, in federal court in San Diego, alleges that while Bujkovsky represented MAK 1 Enterprises Group, LLC ("MAK 1") and its principals, Mohit A. Khanna and Sharanjit K. Khanna, he personally defrauded certain MAK 1 investors, aided and abetted the fraud of MAK 1 and the Khannas, and offered and sold MAK 1's unregistered securities. Investors in the $35 million MAK 1 scheme were promised exorbitantly high returns through guaranteed investments such as foreign currency trading. MAK 1 was in fact a Ponzi scheme and was halted by an emergency action filed by the Commission in federal court in San Diego in August 2009. In that action, SEC v. Mohit A. Khanna, et al., Case No. 09CV1784BEN (filed Aug.17, 2009, the Commission charged MAK 1 and the Khannas with violations of the federal securities laws, Bujkovsky represented MAK 1 and the Khannas as clients between April and August 2009.
The Commission's complaint, filed September 21, in federal court in San Diego, alleges that while Bujkovsky represented MAK 1 Enterprises Group, LLC ("MAK 1") and its principals, Mohit A. Khanna and Sharanjit K. Khanna, he personally defrauded certain MAK 1 investors, aided and abetted the fraud of MAK 1 and the Khannas, and offered and sold MAK 1's unregistered securities. Investors in the $35 million MAK 1 scheme were promised exorbitantly high returns through guaranteed investments such as foreign currency trading. MAK 1 was in fact a Ponzi scheme and was halted by an emergency action filed by the Commission in federal court in San Diego in August 2009. In that action, SEC v. Mohit A. Khanna, et al., Case No. 09CV1784BEN (filed Aug.17, 2009, the Commission charged MAK 1 and the Khannas with violations of the federal securities laws, Bujkovsky represented MAK 1 and the Khannas as clients between April and August 2009.
Saturday, September 18, 2010
SEC Obtains Emergency Asset Freeze to Halt Multimillion Dollar Entertainment Investment Fraud
On September 14, 2010, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Atlanta -based LADP Acquisition, Inc. (LADP Acquisition) and its principals, Atlanta residents William A. Goldstein and Marc E. Bercoon. The SEC alleges that LADP Acquisition, Goldstein and Bercoon are perpetrating an ongoing $3.2 million entertainment investment fraud. The court entered an order halting the alleged fraud and freezing the assets of LADP Acquisition, Goldstein and Bercoon.
The SEC charged LADP Acquisition, Goldstein and Bercoon for allegedly misappropriating investor funds in a “bait-and-switch” scheme. The SEC’s complaint alleges that LADP Acquisition, Goldstein and Bercoon misrepresented that investors would be investing in L.A. Digital Post, Inc. (L.A. Digital), a television and film post-production company with offices in Los Angeles and New York. The SEC’s complaint alleges that prospective investors were provided offering materials listing prominent motion picture studios and television networks that had been clients of L.A. Digital and a “client list” setting forth well-known television shows and movies for which L.A. Digital provided post-production services.
In reality, according to the SEC’s complaint, investors received worthless certificates representing “shares” in LADP Acquisition, an entity with no business operations. The SEC’s complaint further alleges that the defendants represented to potential investors that L.A. Digital is “going public” or going to be the subject of an initial public offering (IPO) within a short period of time, such as 60 or 90 days, and that its shares will be traded on the American Stock Exchange, or some other public exchange such as the New York Stock Exchange or NASDAQ. However, no public offering of L.A. Digital stock has occurred.
The SEC charged LADP Acquisition, Goldstein and Bercoon for allegedly misappropriating investor funds in a “bait-and-switch” scheme. The SEC’s complaint alleges that LADP Acquisition, Goldstein and Bercoon misrepresented that investors would be investing in L.A. Digital Post, Inc. (L.A. Digital), a television and film post-production company with offices in Los Angeles and New York. The SEC’s complaint alleges that prospective investors were provided offering materials listing prominent motion picture studios and television networks that had been clients of L.A. Digital and a “client list” setting forth well-known television shows and movies for which L.A. Digital provided post-production services.
In reality, according to the SEC’s complaint, investors received worthless certificates representing “shares” in LADP Acquisition, an entity with no business operations. The SEC’s complaint further alleges that the defendants represented to potential investors that L.A. Digital is “going public” or going to be the subject of an initial public offering (IPO) within a short period of time, such as 60 or 90 days, and that its shares will be traded on the American Stock Exchange, or some other public exchange such as the New York Stock Exchange or NASDAQ. However, no public offering of L.A. Digital stock has occurred.
Wednesday, September 15, 2010
SEC Settles Claims Involving Scheme to Pay Off Bonds
The Commission announced that on August 26, 2010, Federal District Judge Paul Gardephe of the United States District Court for the Southern District of New York entered final judgments approving settlements between the Commission and the defendants in the pending case against FTC Capital Markets, Inc. ("FTC"), FTC Emerging Markets ("Emerging Markets"), Guillermo David Clamens, and Lina Lopez. The judgments against Clamens, FTC and Emerging Markets order those defendants to pay over $20 million in disgorgement and penalties but provide for full satisfaction of their monetary obligations by defendants' release of their assets frozen at the start of the case and any other assets in the United States. The final judgments, to which the defendants consented without admitting or denying allegations in the Commission's complaint, also permanently enjoin all the defendants from future violations of the relevant provisions of the federal securities laws.
The Commission filed the action on May 19, 2009, charging Clamens, FTC, a registered broker-dealer controlled by Clamens, and Lopez, an FTC employee, with a fraudulent scheme to engage in tens of millions of dollars of unauthorized securities trading through the accounts of two FTC customers. According to the Commission's complaint, Clamens and Lopez defrauded the two FTC customers in part to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank through defendant Emerging Markets, another Clamens-controlled entity. When the fictitious notes held by the Venezuelan bank purportedly came due in August 2008, Clamens allegedly misappropriated $50 million from the two FTC customers to fund the redemption. In addition, the Complaint alleged that Emerging Markets illegally acted as an unregistered broker-dealer. As a result of the alleged misconduct, the Complaint charged that defendants FTC, Emerging Markets, Clamens and Lopez violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; defendant FTC violated Section 15(c) of the Exchange Act; defendant Emerging Markets violated Section 15(a) of the Exchange Act; and defendants Clamens and Lopez aided and abetted FTC's violations of Exchange Act Section 15(c) and Emerging Markets' violations of Exchange Act Section 15(a).
The final judgment against Lopez holds her liable for a civil penalty of $130,000 but does not order her to pay the penalty in light of her conviction in a separate criminal proceeding, United States v. Nazly Cucunuba Lopez a/k/a Lina Lopez, 09 Cr. 985 (RPP)(S.D.N.Y.), and her sworn representations of financial condition. Separately, Clamens and Lopez both agreed to settle related administrative proceedings by the Commission by consenting to be barred from association with any broker or dealer.
The Commission filed the action on May 19, 2009, charging Clamens, FTC, a registered broker-dealer controlled by Clamens, and Lopez, an FTC employee, with a fraudulent scheme to engage in tens of millions of dollars of unauthorized securities trading through the accounts of two FTC customers. According to the Commission's complaint, Clamens and Lopez defrauded the two FTC customers in part to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank through defendant Emerging Markets, another Clamens-controlled entity. When the fictitious notes held by the Venezuelan bank purportedly came due in August 2008, Clamens allegedly misappropriated $50 million from the two FTC customers to fund the redemption. In addition, the Complaint alleged that Emerging Markets illegally acted as an unregistered broker-dealer. As a result of the alleged misconduct, the Complaint charged that defendants FTC, Emerging Markets, Clamens and Lopez violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; defendant FTC violated Section 15(c) of the Exchange Act; defendant Emerging Markets violated Section 15(a) of the Exchange Act; and defendants Clamens and Lopez aided and abetted FTC's violations of Exchange Act Section 15(c) and Emerging Markets' violations of Exchange Act Section 15(a).
The final judgment against Lopez holds her liable for a civil penalty of $130,000 but does not order her to pay the penalty in light of her conviction in a separate criminal proceeding, United States v. Nazly Cucunuba Lopez a/k/a Lina Lopez, 09 Cr. 985 (RPP)(S.D.N.Y.), and her sworn representations of financial condition. Separately, Clamens and Lopez both agreed to settle related administrative proceedings by the Commission by consenting to be barred from association with any broker or dealer.
Tuesday, September 14, 2010
FINRA Sanctions Trillium Brokerage Services, LLC, Director of Trading, Chief Compliance Officer, and Nine Traders $2.26 Million for Illicit Equities Trading Strategy
The Financial Industry Regulatory Authority (FINRA) today announced that it has censured and fined New York-based Trillium Brokerage Services, LLC, $1 million for using an illicit high frequency trading strategy and related supervisory failures. Trillium, through nine proprietary traders, entered numerous layered, non-bona fide market moving orders to generate selling or buying interest in specific stocks. By entering the non-bona fide orders, often in substantial size relative to a stock's overall legitimate pending order volume, Trillium traders created a false appearance of buy- or sell-side pressure.
This trading strategy induced other market participants to enter orders to execute against limit orders previously entered by the Trillium traders. Once their orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity. As a result of this improper high frequency trading strategy, Trillium's traders obtained advantageous prices that otherwise would not have been available to them on 46,000 occasions. Other market participants were unaware that they were acting on the layered, illegitimate orders entered by Trillium traders.
In addition to the nine traders, FINRA also took action against Trillium's Director of Trading and its Chief Compliance Officer. The 11 individuals were suspended from the securities industry or as principals for periods ranging from six months to two years. FINRA levied a total of $802,500 in fines against the individuals, ranging from $12,500 to $220,000, and required the traders to pay out disgorgements totaling about $292,000.
FINRA's investigation found that nine Trillium proprietary traders intentionally created the appearance of substantial selling or buying interest in the NASDAQ Stock Market and NYSE Arca exchange. Trillium's traders bought and sold NASDAQ securities in this manner in over 46,000 instances, resulting in total profits of approximately $575,000, of which the firm retained over $173,000 and subsequently was required to disgorge.
This trading strategy induced other market participants to enter orders to execute against limit orders previously entered by the Trillium traders. Once their orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity. As a result of this improper high frequency trading strategy, Trillium's traders obtained advantageous prices that otherwise would not have been available to them on 46,000 occasions. Other market participants were unaware that they were acting on the layered, illegitimate orders entered by Trillium traders.
In addition to the nine traders, FINRA also took action against Trillium's Director of Trading and its Chief Compliance Officer. The 11 individuals were suspended from the securities industry or as principals for periods ranging from six months to two years. FINRA levied a total of $802,500 in fines against the individuals, ranging from $12,500 to $220,000, and required the traders to pay out disgorgements totaling about $292,000.
FINRA's investigation found that nine Trillium proprietary traders intentionally created the appearance of substantial selling or buying interest in the NASDAQ Stock Market and NYSE Arca exchange. Trillium's traders bought and sold NASDAQ securities in this manner in over 46,000 instances, resulting in total profits of approximately $575,000, of which the firm retained over $173,000 and subsequently was required to disgorge.
Thursday, September 2, 2010
SEC Charges NJ Investment Advisor In Offering Fraud Case
The Securities and Exchange Commission announced that is has filed a complaint in the District of New Jersey against Sandra Venetis, a Branchburg, N.J.-based investment adviser and three of her firms, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, with operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments.
The Commission's complaint alleges that Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.
The Commission's complaint alleges that Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.
The Commission's complaint alleges that Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.
The Commission's complaint alleges that Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.
Wednesday, September 1, 2010
Final Judgment Enterest Against Thompson Consulting, Inc.
On August 17, 2010, the Honorable Bruce S. Jenkins, United States District Court Judge for the District of Utah, entered final judgments of permanent injunction and other relief against Defendants Thompson Consulting, Inc. (Thompson Consulting), Kyle J. Thompson (Thompson), David C. Condie (Condie) and E. Sherman Warner (Warner). The final judgments against Thompson, Condie and Warner enjoin them from violating Sections 17(a)(2) and (3) of the Securities Exchange Act of 1933 (Securities Act).
The final judgment against Thompson Consulting enjoins Thompson Consulting from violations of Sections 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Investment Advisers Act of 1940. In addition to the injunctive relief, Thompson Consulting is liable for disgorgement of $400,000. Thompson Consulting, Thompson, Condie and Warner consented to the entry of the final judgments without admitting or denying the allegations of the complaint.
The Commission commenced this action on March 4, 2008, alleging Thompson Consulting, a hedge fund adviser, and its principals Thompson, Condie and Warner violated the antifraud provisions of the securities laws by making undisclosed subprime and other high-risk investments which resulted in the near total asset losses of two hedge funds managed by the adviser. The Commission's complaint also alleged that Thompson Consulting's deviations from its stated investment policy resulted in substantial losses to the hedge funds.
The final judgment against Thompson Consulting enjoins Thompson Consulting from violations of Sections 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Investment Advisers Act of 1940. In addition to the injunctive relief, Thompson Consulting is liable for disgorgement of $400,000. Thompson Consulting, Thompson, Condie and Warner consented to the entry of the final judgments without admitting or denying the allegations of the complaint.
The Commission commenced this action on March 4, 2008, alleging Thompson Consulting, a hedge fund adviser, and its principals Thompson, Condie and Warner violated the antifraud provisions of the securities laws by making undisclosed subprime and other high-risk investments which resulted in the near total asset losses of two hedge funds managed by the adviser. The Commission's complaint also alleged that Thompson Consulting's deviations from its stated investment policy resulted in substantial losses to the hedge funds.
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