Lehman Brothers Holdings Inc defended on Tuesday a proposed plan to end the largest bankruptcy in U.S. history, but said it will alter certain language to resolve objections from the U.S. Trustee.
Lehman filed court papers in U.S. Bankruptcy Court in Manhattan asking Judge James Peck to approve the outline for its $65 billion payback plan in the face of 18 objections from various parties, including one from the office of U.S. Trustee Tracy Hope Davis.
If Peck green-lights the outline at a hearing scheduled for Tuesday, it will be sent to creditors for a vote. Lehman, which has negotiated nonstop with creditor groups in an attempt to gain widespread support for its plan, hopes to end its bankruptcy and begin paying back creditors by early 2012.
The trustee argued in an August 11 objection that the outline was too vague on certain issues, including the post-bankruptcy role of the committee installed to oversee fee requests from professionals in the case.
Lehman said it will add language explaining that the committee will continue to exist post-bankruptcy and will be disbanded after professionals submit their final fee applications.
Wednesday, August 24, 2011
Tuesday, August 9, 2011
US Files Suit Against Goldman Sachs
Regulators filed a lawsuit Tuesday against Goldman Sachs Group Inc., accusing the investment bank of violating federal and state securities laws in the sale of $1.2 billion in mortgage-backed securities.
The lawsuit, filed in U.S. District Court in Los Angeles, seeks damages in excess of $491 million. It is the fourth securities lawsuit to be filed in recent months by the National Credit Union Administration, which has been negotiating for months with a variety of banks that sold mortgages securities to failed credit unions it has taken over.
The lawsuit alleges that the securities sold by Goldman Sachs to two failed corporate credit unions were "destined to perform poorly."
The lawsuit, filed in U.S. District Court in Los Angeles, seeks damages in excess of $491 million. It is the fourth securities lawsuit to be filed in recent months by the National Credit Union Administration, which has been negotiating for months with a variety of banks that sold mortgages securities to failed credit unions it has taken over.
The lawsuit alleges that the securities sold by Goldman Sachs to two failed corporate credit unions were "destined to perform poorly."
Friday, August 5, 2011
Sec Charges Former Professional Baseball Player Doug Decinces And Three Others With Insider Trading
The Securities and Exchange Commission today charged former professional baseball player Doug DeCinces and three others with insider trading ahead of a company buyout. The SEC alleges that DeCinces and his associates made more than $1.7 million in illegal profits when Abbott Park, Ill.-based Abbott Laboratories Inc. announced its plan to purchase Advanced Medical Optics Inc. through a tender offer.
The SEC alleges that DeCinces, who lives in Laguna Beach, Calif., received confidential information about the acquisition from a source at Santa Ana, Calif.-based Advanced Medical Optics. DeCinces immediately began to purchase shares of Advanced Medical Optics in several brokerage accounts, buying more throughout the course of the impending transaction as he received updated information from his source. During this time, DeCinces also illegally tipped three associates who traded on the confidential information – physical therapist Joseph J. Donohue, real estate lawyer Fred Scott Jackson, and businessman Roger A. Wittenbach.
DeCinces agreed to pay $2.5 million to settle the SEC’s charges, and the three others also agreed to settlements.
The SEC alleges that DeCinces, who lives in Laguna Beach, Calif., received confidential information about the acquisition from a source at Santa Ana, Calif.-based Advanced Medical Optics. DeCinces immediately began to purchase shares of Advanced Medical Optics in several brokerage accounts, buying more throughout the course of the impending transaction as he received updated information from his source. During this time, DeCinces also illegally tipped three associates who traded on the confidential information – physical therapist Joseph J. Donohue, real estate lawyer Fred Scott Jackson, and businessman Roger A. Wittenbach.
DeCinces agreed to pay $2.5 million to settle the SEC’s charges, and the three others also agreed to settlements.
Thursday, July 28, 2011
MassMutual unit agrees to $1 billion Madoff settlement
A hedge fund group owned by Massachusetts Mutual Life Insurance Co. has agreed to pay more than $1 billion to customers of imprisoned fraudster Bernard Madoff, in one of the largest settlements with the trustee in Madoff bankruptcy case.
Under the agreement, announced today, Tremont Group Holdings of Rye, N.Y., and its Rye Select family of funds, will pay more than $1 billion to the fund for defrauded Madoff clients. The entities were the second-largest of the so-called feeder funds to Madoff, private portfolios that directed billions of dollars in client assets to Madoff.
The settlement agreement includes Tremont’s former chief executive; the group’s owner, Oppenheimer Acquisition Corp.; and Springfield-based MassMutual, Oppenheimer’s parent.
According to the complaint, the Tremont Group and related entities were aware, through warnings in both internal communications and publicly available information, that the Madoff operation could be a fraud.
Under the agreement, announced today, Tremont Group Holdings of Rye, N.Y., and its Rye Select family of funds, will pay more than $1 billion to the fund for defrauded Madoff clients. The entities were the second-largest of the so-called feeder funds to Madoff, private portfolios that directed billions of dollars in client assets to Madoff.
The settlement agreement includes Tremont’s former chief executive; the group’s owner, Oppenheimer Acquisition Corp.; and Springfield-based MassMutual, Oppenheimer’s parent.
According to the complaint, the Tremont Group and related entities were aware, through warnings in both internal communications and publicly available information, that the Madoff operation could be a fraud.
Aidikoff, Uhl & Bakhtiari Investigates Ridgewood Energy Losses
Aidikoff, Uhl & Bakhtiari announces it is investigating Ridgewood Energy losses on behalf of investors in their oil and gas drilling partnerships.
The Ridgewood Energy funds were sold as income producing having invested in underlying oil and gas projects. These investments were illiquid, highly speculative and not transparent.
To discuss your Ridgewood Energy investment and to determine whether your losses might be recoverable contact us.
The Ridgewood Energy funds were sold as income producing having invested in underlying oil and gas projects. These investments were illiquid, highly speculative and not transparent.
To discuss your Ridgewood Energy investment and to determine whether your losses might be recoverable contact us.
SEC and SIPC Dispute Looming over Allen Stanford Ponzi Scheme Payouts
When regulators froze R. Allen Stanford’s assets two years ago and accused him of running a $7 billion Ponzi scheme, 20,000 investors were left wondering if they’d ever get their money back.
Now the Securities and Exchange Commission and a federally chartered investor protection group are clashing over whether Stanford’s clients should be eligible for payments like the victims of Bernard Madoff. The dispute highlights how the rules can get murky when politics collides with securities law.
The group — the Securities Investor Protection Corp., known as the SIPC — has maintained that the law doesn’t provide for payouts to investors in the Stanford case because it involves only fraud, not theft.
The SEC’s staff initially agreed, but SEC chairwoman Mary Schapiro and two other commissioners rejected the analysis and ordered it redone, according to people with knowledge of the matter.
On June 15, the SEC told the SIPC to start a process that could give as much as $500,000 to each qualified Stanford investor. The agency further surprised the SIPC by threatening to sue if it didn’t carry out the plan.
Stephen Harbeck, the SIPC President, has said publicly that he doesn’t think the Stanford investors are eligible for repayments. The SIPC is supposed to aid investors when their securities are stolen or go missing at a brokerage. Stanford’s customers still have possession of their securities, he said, and fraud by itself isn’t covered.
The question will remain unsettled until at least mid-September, when the SIPC board meets to decide whether to follow the SEC’s opinion.
The SEC decision came after more than two years of political pressure on Schapiro. More than 50 lawmakers signed letters asking her to explain why Stanford investors weren’t getting aid from the SIPC, which is helping a court-appointed receiver return billions of dollars to Madoff victims.
Now the Securities and Exchange Commission and a federally chartered investor protection group are clashing over whether Stanford’s clients should be eligible for payments like the victims of Bernard Madoff. The dispute highlights how the rules can get murky when politics collides with securities law.
The group — the Securities Investor Protection Corp., known as the SIPC — has maintained that the law doesn’t provide for payouts to investors in the Stanford case because it involves only fraud, not theft.
The SEC’s staff initially agreed, but SEC chairwoman Mary Schapiro and two other commissioners rejected the analysis and ordered it redone, according to people with knowledge of the matter.
On June 15, the SEC told the SIPC to start a process that could give as much as $500,000 to each qualified Stanford investor. The agency further surprised the SIPC by threatening to sue if it didn’t carry out the plan.
Stephen Harbeck, the SIPC President, has said publicly that he doesn’t think the Stanford investors are eligible for repayments. The SIPC is supposed to aid investors when their securities are stolen or go missing at a brokerage. Stanford’s customers still have possession of their securities, he said, and fraud by itself isn’t covered.
The question will remain unsettled until at least mid-September, when the SIPC board meets to decide whether to follow the SEC’s opinion.
The SEC decision came after more than two years of political pressure on Schapiro. More than 50 lawmakers signed letters asking her to explain why Stanford investors weren’t getting aid from the SIPC, which is helping a court-appointed receiver return billions of dollars to Madoff victims.
Wednesday, July 27, 2011
FINRA Fines SunTrust Robinson Humphrey, SunTrust Investment Services a Total of $5 Million for Auction Rate Securities Violations
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined SunTrust Robinson Humphrey, Inc. (SunTrust RH) and SunTrust Investment Services, Inc. (SunTrust IS) for violations related to the sale of auction rate securities (ARS). SunTrust RH, which underwrote the ARS, was fined $4.6 million for failing to adequately disclose the increased risk that auctions could fail, sharing material non-public information, using sales material that did not adequately disclose the risks associated with ARS, and having inadequate supervisory procedures and training concerning the sales and marketing of ARS. SunTrust IS was fined $400,000 for having deficient ARS sales material, procedures and training.
FINRA found that beginning in late summer 2007, SunTrust RH became aware of stresses in the ARS market that raised the risk that auctions might fail. At the same time, SunTrust RH was told by its parent, SunTrust Bank, to reduce its use of the bank's capital and began to examine whether it had the financial capability in the event of a major market disruption to support all ARS in which it acted as the sole or lead broker-dealer. As these stresses increased, the firm failed to adequately disclose the increased risk to its sales representatives while encouraging them to sell SunTrust RH-led ARS issues in order to reduce the firm's inventory. As a result, certain SunTrust RH sales representatives continued to sell these ARS as safe and liquid. In February 2008, SunTrust RH stopped supporting ARS auctions, knowing that those auctions would fail and the ARS would become illiquid.
FINRA found that beginning in late summer 2007, SunTrust RH became aware of stresses in the ARS market that raised the risk that auctions might fail. At the same time, SunTrust RH was told by its parent, SunTrust Bank, to reduce its use of the bank's capital and began to examine whether it had the financial capability in the event of a major market disruption to support all ARS in which it acted as the sole or lead broker-dealer. As these stresses increased, the firm failed to adequately disclose the increased risk to its sales representatives while encouraging them to sell SunTrust RH-led ARS issues in order to reduce the firm's inventory. As a result, certain SunTrust RH sales representatives continued to sell these ARS as safe and liquid. In February 2008, SunTrust RH stopped supporting ARS auctions, knowing that those auctions would fail and the ARS would become illiquid.
Tuesday, July 26, 2011
State of Georgia Investigates Reverse Convertibles
Georgia requested information from UBS AG, Morgan Stanley and Ameriprise Financial Inc. in its probe over whether the firms broke the state’s securities laws in sales of structured notes called reverse convertibles.
The Secretary of State’s office sent subpoenas requesting data from each of the firms on how many reverse convertibles they sold in Georgia and the names of the investors.
Reverse convertibles are short-term bonds generally sold to individuals that convert into stock if a company’s share price plummets.
Sales of structured notes such as reverse convertibles are soaring as investors frustrated by record-low interest rates on savings seek higher returns through investments that carry more risk. The “complex” securities can be difficult for investors and brokers to evaluate, according to the Financial Industry Regulatory Authority.
Regulators have increased scrutiny of the market, fining some brokers for marketing reverse convertibles to elderly investors or those with little money, as sales have increased. Massachusetts is looking into sales of the products.
The Secretary of State’s office sent subpoenas requesting data from each of the firms on how many reverse convertibles they sold in Georgia and the names of the investors.
Reverse convertibles are short-term bonds generally sold to individuals that convert into stock if a company’s share price plummets.
Sales of structured notes such as reverse convertibles are soaring as investors frustrated by record-low interest rates on savings seek higher returns through investments that carry more risk. The “complex” securities can be difficult for investors and brokers to evaluate, according to the Financial Industry Regulatory Authority.
Regulators have increased scrutiny of the market, fining some brokers for marketing reverse convertibles to elderly investors or those with little money, as sales have increased. Massachusetts is looking into sales of the products.
Apple REIT Ten
The newest fund run by the downtown-based Apple REIT Companies has barely skipped a beat since the company was recently dragged into the national spotlight.
In fact, Apple REIT Ten continued a two-month buying streak of multi-million hotel purchases last week when it disclosed that it closed on the purchase of two more hotels for a total price of $28 million.
The deals involved a 103-room Homewood Suites hotel in Knoxville, Tenn. for $15 million and a 103-room Hampton Inn & Suites in Davenport, Iowa for $13 million.
Apple REIT as part of the deal assumed an existing loan secured by the Knoxville hotel with a $11.5 million outstanding balance. The loan matures in Oct. 2016.
The deals cap what has been a busy couple of months for Apple REIT Ten and its sister funds, Apple REITs Six, Seven, Eight and Nine.
Just this month, in addition to two closings last week, Apple REIT Ten entered into purchase contracts on four hotels worth a combined $75.15 million. Those pending deals are for the acquisition of Hilton Garden Inns in Omaha, Neb., Scottsdale, Ariz., Merrillville, Ind.and Mason, Ohio.
In June it closed on the purchase of five hotels for a total of $62.5 million, including an $11 million purchase for a SpringHill Suites near Mayland Drive and Gaskins Road in Glen Allen.
As of June 30, 25.88 million Apple REIT units had been sold to investors resulting in proceeds of $384.8 million. That cash is what the company uses to purchase its hotels.
Though some of the cash is paid in commissions to an entity called Apple Suites Realty Group. That entity, owned by Apple REIT Chairman and CEO Glade Knight, receives a 2 percent commission on every hotel purchase made.
Also receiving commissions is Apple REIT’s exclusive broker, David Lerner Assoc. The New York firm was recently thrown into hot water when federal regulators accused it of misleading investors when selling shares of Apple REIT Eight.
The Apple REITs and Lerner have consequently since been hit with class action lawsuits from disgruntled investors.
In fact, Apple REIT Ten continued a two-month buying streak of multi-million hotel purchases last week when it disclosed that it closed on the purchase of two more hotels for a total price of $28 million.
The deals involved a 103-room Homewood Suites hotel in Knoxville, Tenn. for $15 million and a 103-room Hampton Inn & Suites in Davenport, Iowa for $13 million.
Apple REIT as part of the deal assumed an existing loan secured by the Knoxville hotel with a $11.5 million outstanding balance. The loan matures in Oct. 2016.
The deals cap what has been a busy couple of months for Apple REIT Ten and its sister funds, Apple REITs Six, Seven, Eight and Nine.
Just this month, in addition to two closings last week, Apple REIT Ten entered into purchase contracts on four hotels worth a combined $75.15 million. Those pending deals are for the acquisition of Hilton Garden Inns in Omaha, Neb., Scottsdale, Ariz., Merrillville, Ind.and Mason, Ohio.
In June it closed on the purchase of five hotels for a total of $62.5 million, including an $11 million purchase for a SpringHill Suites near Mayland Drive and Gaskins Road in Glen Allen.
As of June 30, 25.88 million Apple REIT units had been sold to investors resulting in proceeds of $384.8 million. That cash is what the company uses to purchase its hotels.
Though some of the cash is paid in commissions to an entity called Apple Suites Realty Group. That entity, owned by Apple REIT Chairman and CEO Glade Knight, receives a 2 percent commission on every hotel purchase made.
Also receiving commissions is Apple REIT’s exclusive broker, David Lerner Assoc. The New York firm was recently thrown into hot water when federal regulators accused it of misleading investors when selling shares of Apple REIT Eight.
The Apple REITs and Lerner have consequently since been hit with class action lawsuits from disgruntled investors.
Monday, July 25, 2011
Aidikoff, Uhl & Bakhtiari Investigates LaeRoc Fund Losses
Aidikoff, Uhl & Bakhtiari announces it is investigating LaeRoc Fund losses on behalf of investors in their non-traded real estate partnerships.
The LaeRoc Income funds were sold as income producing having invested in underlying income producing properties in the western United States with a focus on Southern California. LaeRoc is located in Hermosa Beach, California.
Some of the funds, including the LaeRoc 2002 Income Fund, L.P. appear to be dissolving. Others including LaeRoc 2005 Income Fund, L.P. have issued capital calls to the investors.
To discuss your LaeRoc Income Fund investment and to determine whether your losses might be recoverable contact us.
The LaeRoc Income funds were sold as income producing having invested in underlying income producing properties in the western United States with a focus on Southern California. LaeRoc is located in Hermosa Beach, California.
Some of the funds, including the LaeRoc 2002 Income Fund, L.P. appear to be dissolving. Others including LaeRoc 2005 Income Fund, L.P. have issued capital calls to the investors.
To discuss your LaeRoc Income Fund investment and to determine whether your losses might be recoverable contact us.
SEC v. Trevor G. Cook, Patrick J. Kiley, et al.
The Securities and Exchange Commission announced that on July 19, 2011, the U.S. Attorney's Office in Minnesota filed criminal charges against Jason Bo-Alan Beckman, Gerald Joseph Durand, and Patrick Joseph Kiley for their roles in a $194 million fraudulent foreign currency trading scheme orchestrated by Trevor Cook. The U.S. Attorney’s Office previously charged Cook and Christopher Pettengill for their involvement in the fraud. In August 2010, Cook entered a guilty plea to mail fraud and tax evasion and was sentenced to 25 years in prison and ordered to pay $155 million in restitution. On June 21, 2011, Pettengill agreed to plead guilty to securities fraud and awaits sentencing.
In November 2009, the SEC filed a civil injunctive action against Cook and Kiley and in March 2011, filed an injunctive action against Beckman. The SEC’s actions against these defendants, which were filed in the United States District Court for the District of Minnesota, arose out of the same facts that are the subject of the criminal case. The SEC’s complaints allege that from at least 2006 through 2009, Cook and Kiley with the help of Beckman and others raised at least $194 million from at least 1,000 investors through the unregistered offer and sale of investments in a purported foreign currency trading venture (the “Currency Program”). According to the SEC’s complaints, the defendants told investors that each investor’s money would be invested in the Currency Program, their money would be held in a segregated account, there was little or no risk to their money, they would receive guaranteed returns ranging from approximately 10% to 12% per year, and they could withdraw their money at any time. The SEC alleges that these representations were false. According to the SEC’s complaints, a significant portion of the investors’ funds were never invested in the Currency Program but instead were used to make purported interest and return of principal payments to other investors and also diverted to certain of the defendants and their companies. None of the funds were ever placed in segregated accounts at banks or foreign currency trading firms and the funds sent to the trading firms sustained significant losses.
In November 2009, the SEC filed a civil injunctive action against Cook and Kiley and in March 2011, filed an injunctive action against Beckman. The SEC’s actions against these defendants, which were filed in the United States District Court for the District of Minnesota, arose out of the same facts that are the subject of the criminal case. The SEC’s complaints allege that from at least 2006 through 2009, Cook and Kiley with the help of Beckman and others raised at least $194 million from at least 1,000 investors through the unregistered offer and sale of investments in a purported foreign currency trading venture (the “Currency Program”). According to the SEC’s complaints, the defendants told investors that each investor’s money would be invested in the Currency Program, their money would be held in a segregated account, there was little or no risk to their money, they would receive guaranteed returns ranging from approximately 10% to 12% per year, and they could withdraw their money at any time. The SEC alleges that these representations were false. According to the SEC’s complaints, a significant portion of the investors’ funds were never invested in the Currency Program but instead were used to make purported interest and return of principal payments to other investors and also diverted to certain of the defendants and their companies. None of the funds were ever placed in segregated accounts at banks or foreign currency trading firms and the funds sent to the trading firms sustained significant losses.
Tuesday, July 19, 2011
Moody's Adds 5 States to Creditwatch List
Moody's Investors Service placed its ratings on five Aaa-rated states on watch for downgrade, saying if the U.S. government's ratings were to be lowered, those states would face probable cuts as well.
The ratings agency's action on Maryland, New Mexico, South Carolina, Tennessee and Virginia affect a combined $24 billion of general obligation and related debt. It follows Moody's announcement last week that it would consider a downgrade on the U.S. government's bond rating, citing the "rising possibility that the statutory debt limit will not be raised on a timely basis," which would lead to a default on U.S. Treasury debt obligations.
Moody's on Tuesday said it would review each of the five states on a case-by-case basis and plans to act on the ratings within seven to 10 days following a sovereign action.
The ratings agency's action on Maryland, New Mexico, South Carolina, Tennessee and Virginia affect a combined $24 billion of general obligation and related debt. It follows Moody's announcement last week that it would consider a downgrade on the U.S. government's bond rating, citing the "rising possibility that the statutory debt limit will not be raised on a timely basis," which would lead to a default on U.S. Treasury debt obligations.
Moody's on Tuesday said it would review each of the five states on a case-by-case basis and plans to act on the ratings within seven to 10 days following a sovereign action.
Saturday, July 16, 2011
Operator Of $21 Million Forex Ponzi Scheme Charged
The Securities and Exchange Commission on July 14, 2011 filed fraud charges against the CEO of a purported foreign currency trading firm, alleging he scammed hundreds of investors with false promises of high, fixed-rate returns while secretly using their money to fund his start-up alternative newspaper.
First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, who had fled to Peru and was arrested there earlier this year, was arraigned today on criminal fraud charges in a 2010 indictment filed by the United States Attorney’s Office for the Northern District of Illinois. In addition, the Commodity Futures Trading Commission filed fraud charges Thursday against Lowrance and First Capital.
The SEC alleges that Lowrance raised approximately $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah by promising huge profits from a specialized foreign currency trading program. In reality, First Capital conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Lowrance targeted investors by purporting to share their Christian values and limited-government political views. He solicited investors through, among other things, ads in his start-up newspaper USA Tomorrow, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.
First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, who had fled to Peru and was arrested there earlier this year, was arraigned today on criminal fraud charges in a 2010 indictment filed by the United States Attorney’s Office for the Northern District of Illinois. In addition, the Commodity Futures Trading Commission filed fraud charges Thursday against Lowrance and First Capital.
The SEC alleges that Lowrance raised approximately $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah by promising huge profits from a specialized foreign currency trading program. In reality, First Capital conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Lowrance targeted investors by purporting to share their Christian values and limited-government political views. He solicited investors through, among other things, ads in his start-up newspaper USA Tomorrow, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.
Friday, July 15, 2011
Order Against Former Prudential Registered Representatives In Connection With Deceptive Market Timing Practices
Martin J. Druffner Ordered to Pay $1,131,157 in Ill-Gotten Gains and Prejudgment Interest; Skifter Ajro Ordered to Pay $124,427
The Commission today announced that, on July 13, 2011, a Massachusetts federal court entered an order against Martin J. Druffner of Hopkinton, Massachusetts, and Skifter Ajro of Milford, Massachusetts, two defendants in a civil injunctive action filed by the Commission on November 4, 2003, requiring them to pay $1,131,157 and $124,427, respectively, in disgorgement and prejudgment interest. The court had previously entered judgments against Druffner and Ajro on October 10, 2006 enjoining them from future violations of the federal securities laws. The Commission alleged in its complaint that Druffner and Ajro, former registered representatives of broker-dealer Prudential Securities, Inc., committed fraud in connection with their deceptive market timing trades in dozens of mutual funds.
The Commission filed its complaint against Druffner and Ajro, three other former Prudential Securities registered representatives, and their former branch manager, on November 4, 2003, and amended its complaint on July 14, 2004. The amended complaint alleged that Druffner and Ajro were part of a group of registered representatives that defrauded mutual fund companies and the funds' shareholders by placing thousands of market timing trades worth more than $1 billion for five hedge fund customers from at least January 2001 through September 2003. According to the amended complaint, Druffner and Ajro knew that the mutual fund companies monitored and attempted to restrict excessive trading in their mutual funds. The amended complaint alleged that, to evade those restrictions when placing market timing trades, members of the group disguised their own identities by establishing multiple broker identification numbers and disguised their customers' identities by opening numerous customer accounts for what were, in reality, only a handful of customers.
The order was entered by the Honorable Nathaniel M. Gorton of the United States District Court for the District of Massachusetts.
The Commission today announced that, on July 13, 2011, a Massachusetts federal court entered an order against Martin J. Druffner of Hopkinton, Massachusetts, and Skifter Ajro of Milford, Massachusetts, two defendants in a civil injunctive action filed by the Commission on November 4, 2003, requiring them to pay $1,131,157 and $124,427, respectively, in disgorgement and prejudgment interest. The court had previously entered judgments against Druffner and Ajro on October 10, 2006 enjoining them from future violations of the federal securities laws. The Commission alleged in its complaint that Druffner and Ajro, former registered representatives of broker-dealer Prudential Securities, Inc., committed fraud in connection with their deceptive market timing trades in dozens of mutual funds.
The Commission filed its complaint against Druffner and Ajro, three other former Prudential Securities registered representatives, and their former branch manager, on November 4, 2003, and amended its complaint on July 14, 2004. The amended complaint alleged that Druffner and Ajro were part of a group of registered representatives that defrauded mutual fund companies and the funds' shareholders by placing thousands of market timing trades worth more than $1 billion for five hedge fund customers from at least January 2001 through September 2003. According to the amended complaint, Druffner and Ajro knew that the mutual fund companies monitored and attempted to restrict excessive trading in their mutual funds. The amended complaint alleged that, to evade those restrictions when placing market timing trades, members of the group disguised their own identities by establishing multiple broker identification numbers and disguised their customers' identities by opening numerous customer accounts for what were, in reality, only a handful of customers.
The order was entered by the Honorable Nathaniel M. Gorton of the United States District Court for the District of Massachusetts.
Wednesday, July 13, 2011
SEC Charges Philadelphia-Based Registered Investment Adviser With Fraud
According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of Pennsylvania, from approximately 2002 through October 2010, Folin, Benchmark and Harvest offered and sold securities in Harvest, Benchmark, and Safe Haven Portfolios LLC (Safe Haven), a pooled investment vehicle, promising investors that their funds would be invested in public and private companies with “socially responsible” goals and purposes. Instead, the complaint alleges that Folin, Benchmark and Harvest diverted a portion of the invested funds to pay previous investors as well as to sustain Benchmark’s and Harvest’s expenses which included paying Folin’s salary.
More specifically, the complaint alleges that Benchmark and Harvest issued various “notes” to advisory clients, friends and family promising guaranteed above-market interest rates. Folin, Benchmark and Harvest assured investors that such notes were conservative and safe. According to the complaint, Folin, Benchmark and Harvest failed to disclose the true uses of those funds and continually misrepresented the value of the notes on quarterly statements.
In addition, the complaint alleges that in August 2004 Folin and Benchmark formed Safe Haven which purported to offer investments in several different portfolios, including the Private Fixed Income Portfolio, the Hedged Equity Portfolio, the Green Real Estate Portfolio and the Sustainable Enhanced Cash Portfolio. The complaint also alleges that Folin and Benchmark caused Benchmark’s advisory clients to invest in Safe Haven and that Folin and Benchmark also acted as investment advisers to Safe Haven. From 2006 through 2009, the complaint alleges that Folin and Benchmark caused Safe Haven to pay over $1.7 million to Benchmark and Harvest under the guise of “development costs.” The complaint alleges that these “development costs” did not relate to any actual expenses incurred by Harvest or Benchmark in connection with the formation or offering of Safe Haven securities. Rather, the complaint alleges, the payments coincided with Harvest’s and Benchmark’s need for funds to pay previous investors, expenses and Folin’s salary. Moreover, the complaint alleges that Folin and Benchmark improperly amortized the development costs rather than expensing them as incurred in accordance with Generally Accepted Accounting Principles (GAAP) thereby causing the reported net asset values of the Safe Haven portfolio to be overstated on statements provided to advisory clients and investors.
More specifically, the complaint alleges that Benchmark and Harvest issued various “notes” to advisory clients, friends and family promising guaranteed above-market interest rates. Folin, Benchmark and Harvest assured investors that such notes were conservative and safe. According to the complaint, Folin, Benchmark and Harvest failed to disclose the true uses of those funds and continually misrepresented the value of the notes on quarterly statements.
In addition, the complaint alleges that in August 2004 Folin and Benchmark formed Safe Haven which purported to offer investments in several different portfolios, including the Private Fixed Income Portfolio, the Hedged Equity Portfolio, the Green Real Estate Portfolio and the Sustainable Enhanced Cash Portfolio. The complaint also alleges that Folin and Benchmark caused Benchmark’s advisory clients to invest in Safe Haven and that Folin and Benchmark also acted as investment advisers to Safe Haven. From 2006 through 2009, the complaint alleges that Folin and Benchmark caused Safe Haven to pay over $1.7 million to Benchmark and Harvest under the guise of “development costs.” The complaint alleges that these “development costs” did not relate to any actual expenses incurred by Harvest or Benchmark in connection with the formation or offering of Safe Haven securities. Rather, the complaint alleges, the payments coincided with Harvest’s and Benchmark’s need for funds to pay previous investors, expenses and Folin’s salary. Moreover, the complaint alleges that Folin and Benchmark improperly amortized the development costs rather than expensing them as incurred in accordance with Generally Accepted Accounting Principles (GAAP) thereby causing the reported net asset values of the Safe Haven portfolio to be overstated on statements provided to advisory clients and investors.
Tuesday, July 12, 2011
SEC Charges Ronald F. LeGrand and Frederick E. Wheat, Jr. with Making Fraudulent Representations in the Unregistered Offer and Sale of Securities in Mountain Country Partners, LLC
The Securities and Exchange Commission announced today that on July 12, 2011, it filed a settled civil action in the United States District Court for the Southern District of West Virginia against Ronald F. LeGrand ("LeGrand"), a founder and the sole manager of Mountain Country Partners, LLC ("MCP"), a West Virginia oil and gas company, and one of his former partners, Frederick E. Wheat ("Wheat"). The Commission alleges that, from September 2006 through December 2006, LeGrand and Wheat raised over $9.5 million for MCP from approximately 54 investors located throughout the United States through the sale of promissory notes and limited partnership membership interests. These funds were raised primarily via e-mail and in-person solicitations from individuals who attended real estate investment seminars promoted and taught by LeGrand, and were used to purchase the land and other assets of a bankrupt oil and gas company headquartered in West Virginia. At the time of their solicitations, neither LeGrand nor Wheat was experienced in working or investing in the oil and gas industry. Despite this inexperience, LeGrand and Wheat solicited investors by making material misrepresentations and omissions regarding the investment, including the degree of risk, amount of expected returns, value of the company's assets, and the guaranteed return of principal and interest within as little as 90 days. In addition, LeGrand and Wheat failed to register MCP's securities offerings, although no exemption from registration applies. To date, MCP has been unable to repay investors the returns promised by LeGrand and Wheat.
LeGrand and Wheat agreed to settle the Commission's charges, without admitting or denying the allegations in the Commission's complaint. Under the settlement, which is subject to the court's approval, LeGrand and Wheat consented to a judgment permanently enjoining them from violating Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The judgment also orders LeGrand to pay a civil penalty in the amount of $150,000.
LeGrand and Wheat agreed to settle the Commission's charges, without admitting or denying the allegations in the Commission's complaint. Under the settlement, which is subject to the court's approval, LeGrand and Wheat consented to a judgment permanently enjoining them from violating Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The judgment also orders LeGrand to pay a civil penalty in the amount of $150,000.
Monday, July 11, 2011
OTC Dealers Catch a Major Break due to Dodd-Frank Setback
Thanks to a sudden slowdown in the implementation of key financial market reforms, banks have found themselves in the lucrative position of being able to hold on to over-the counter derivatives for longer than expected.
The proposal to shift over-the-counter derivatives to electronic trading platforms during the post-crisis clean-up of the financial system was brought forward in the G20 commitments and finally agreed upon in 2009.
The derivatives, including credit default swaps and interest rate swaps, were initially destined to be processed through clearing houses in order to help safeguard the financial system against possible future default fallouts. Yet implementation of the Dodd-Frank act has been put back about six months, after the Commodity Futures Trading Commission and the Securities and Exchange Commission agreed to delay implementation from a deadline set by Congress of July 15 to the end of the year.
Larry Tabb, chief executive of Tabb Group, a consultancy, said the delay, coupled with moves by Republicans in the House of Representatives to curtail funding of the two US regulators, meant dealers had won a reprieve from a requirement to relax their grip on the $600,000bn OTC derivatives market.
In a statement made to the Financial Times by Michael Spencer, chief executive of Icap, the world’s largest interdealer broker, Mr. Spencer remarked that “Because the Dodd-Frank process has been caught in treacle, many in the financial industry aren’t pushing electronification yet”.
“I think if you go back six to eight months, when the pressure was on to get everything done by July, the dealers were moving quickly toward trying to resolve the issues to make electronic trading and clearing happen,” Mr Tabb said. “However, we see a definite slowdown of the dealers and everyone in the market to adapt to the new practices. No one knows what’s going to happen.”
The European parliament this week postponed finalisation of the European Market Infrastructure Regulation (Emir), which contains similar provisions on clearing of OTC derivatives to Dodd-Frank. “Everyone has realised this legislation is much more complex than was originally given credit for,” said David Clark, chairman of the Wholesale Markets Brokers’ Association, a London-based trade group representing interdealer brokers.
According to Steve O’Conner, Chair Member for the International Swaps and Derivatives Association (Isda) and Morgan Stanley banker, “Dealers reject any suggestion that they are reluctant to embrace the reforms.” Regardless of the major delays encompassing this topic, Isda says that more than 90 per cent of eligible credit and interest rate derivatives currently traded, have in fact already been cleared.
The proposal to shift over-the-counter derivatives to electronic trading platforms during the post-crisis clean-up of the financial system was brought forward in the G20 commitments and finally agreed upon in 2009.
The derivatives, including credit default swaps and interest rate swaps, were initially destined to be processed through clearing houses in order to help safeguard the financial system against possible future default fallouts. Yet implementation of the Dodd-Frank act has been put back about six months, after the Commodity Futures Trading Commission and the Securities and Exchange Commission agreed to delay implementation from a deadline set by Congress of July 15 to the end of the year.
Larry Tabb, chief executive of Tabb Group, a consultancy, said the delay, coupled with moves by Republicans in the House of Representatives to curtail funding of the two US regulators, meant dealers had won a reprieve from a requirement to relax their grip on the $600,000bn OTC derivatives market.
In a statement made to the Financial Times by Michael Spencer, chief executive of Icap, the world’s largest interdealer broker, Mr. Spencer remarked that “Because the Dodd-Frank process has been caught in treacle, many in the financial industry aren’t pushing electronification yet”.
“I think if you go back six to eight months, when the pressure was on to get everything done by July, the dealers were moving quickly toward trying to resolve the issues to make electronic trading and clearing happen,” Mr Tabb said. “However, we see a definite slowdown of the dealers and everyone in the market to adapt to the new practices. No one knows what’s going to happen.”
The European parliament this week postponed finalisation of the European Market Infrastructure Regulation (Emir), which contains similar provisions on clearing of OTC derivatives to Dodd-Frank. “Everyone has realised this legislation is much more complex than was originally given credit for,” said David Clark, chairman of the Wholesale Markets Brokers’ Association, a London-based trade group representing interdealer brokers.
According to Steve O’Conner, Chair Member for the International Swaps and Derivatives Association (Isda) and Morgan Stanley banker, “Dealers reject any suggestion that they are reluctant to embrace the reforms.” Regardless of the major delays encompassing this topic, Isda says that more than 90 per cent of eligible credit and interest rate derivatives currently traded, have in fact already been cleared.
Friday, July 8, 2011
SEC Charges JPMS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds
J.P. Morgan to Pay $228 Million to Settle Charges By SEC, Others
The Securities and Exchange Commission today charged J.P. Morgan Securities LLC (JPMS) with fraudulently rigging at least 93 municipal bond reinvestment transactions in 31 states, generating millions of dollars in ill-gotten gains.
To settle the SEC’s fraud charges, JPMS agreed to pay approximately $51.2 million that will be returned to the affected municipalities or conduit borrowers. JPMS and its affiliates also agreed to pay $177 million to settle parallel charges brought by other federal and state authorities.
Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes. Under relevant Internal Revenue Service (IRS) regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.
The SEC alleges that from 1997 through 2005, JPMS’s fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The employees involved in the alleged misconduct are no longer with the company.
The Securities and Exchange Commission today charged J.P. Morgan Securities LLC (JPMS) with fraudulently rigging at least 93 municipal bond reinvestment transactions in 31 states, generating millions of dollars in ill-gotten gains.
To settle the SEC’s fraud charges, JPMS agreed to pay approximately $51.2 million that will be returned to the affected municipalities or conduit borrowers. JPMS and its affiliates also agreed to pay $177 million to settle parallel charges brought by other federal and state authorities.
Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes. Under relevant Internal Revenue Service (IRS) regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.
The SEC alleges that from 1997 through 2005, JPMS’s fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The employees involved in the alleged misconduct are no longer with the company.
Tuesday, July 5, 2011
SEC Revamps Security-Based Swap Transactions
Wednesday June 29, 2011 marked the unveiling of proposed rules brought forth by U.S. securities regulators and aimed at protecting investors. The proposals which were issued by the Securities and Exchange Commission (SEC) are designed to set standards for how dealers treat customers entering into "security-based" swap transactions, and are part of the SEC’s plan to begin policing the over-the-counter derivatives market and to help prevent another financial crisis.
Security-based swaps are connected to the performance of a small basket of securities stock, or bond. This then allows investors to bet on the possibility a company or government will default on its debt. During the housing boom, the credit-default-swaps market found its footing and swelled after banks began tying the instruments to the performances of risky mortgage bonds. American International Group Inc. (AIG) and other institutions that sold the swaps were badly burned when the housing balloon burst and companies that had bet against the market demanded payment on their swaps.
In 2010, the Dodd-Frank law delegated responsibilities to the SEC and the Commodity Futures Trading Commission to draft rules requiring all swaps, a type of derivatives contract in which one asset or liability is exchanged for another in the future, to be traded on exchanges and other open platforms. The law also requires swaps dealers and major players in the market to follow certain standards when dealing with counterparties.
Swaps dealers would be required to recommend to their customers only transactions and strategies deemed suitable, using a standard that is already applied broadly to the brokerage industry by the Financial Industry Regulatory Authority.
Dealers would have to communicate with their customers in a fair manner, disclose information about the transaction's risks and any conflicts of interest, and verify that counterparty meets the financial threshold for entering into a swap. They would also have to appoint a chief compliance officer.
The obligations would be even tougher for dealers selling swaps to pension plans, municipalities, endowments or other similar entities. Dealers advising such entities on their swap transactions or strategies, rather than serving as a counterparty to the transaction, would have to act in the customer's best interest.
Ultimately, the proposals issued Wednesday would "level the playing field" in the swaps market and "ensure that customers in these transactions are treated fairly," SEC Chairman Mary Schapiro said at the meeting.
Last fall the CFTC proposed similar standards for the rest of the swaps market—and drew fire from banks that serve as swap dealers. The banks said the plan wouldn't give them enough legal certainty that they are serving as a counterparty rather than an adviser on swap transactions and therefore not under obligation to serve the customer's best interest.
The SEC sought to address these concerns by clarifying what counts as advice on a swaps transaction. Under its proposal, parties also could agree contractually that the dealer isn't serving as an adviser to a customer as long as certain tests are met, such as the customer has its own independent adviser, and the dealer discloses that it isn't acting in the customer's best interest. That would allow a dealer selling swaps to make recommendations to pension plans and similar entities without triggering the stiffer obligations.
Security-based swaps are connected to the performance of a small basket of securities stock, or bond. This then allows investors to bet on the possibility a company or government will default on its debt. During the housing boom, the credit-default-swaps market found its footing and swelled after banks began tying the instruments to the performances of risky mortgage bonds. American International Group Inc. (AIG) and other institutions that sold the swaps were badly burned when the housing balloon burst and companies that had bet against the market demanded payment on their swaps.
In 2010, the Dodd-Frank law delegated responsibilities to the SEC and the Commodity Futures Trading Commission to draft rules requiring all swaps, a type of derivatives contract in which one asset or liability is exchanged for another in the future, to be traded on exchanges and other open platforms. The law also requires swaps dealers and major players in the market to follow certain standards when dealing with counterparties.
Swaps dealers would be required to recommend to their customers only transactions and strategies deemed suitable, using a standard that is already applied broadly to the brokerage industry by the Financial Industry Regulatory Authority.
Dealers would have to communicate with their customers in a fair manner, disclose information about the transaction's risks and any conflicts of interest, and verify that counterparty meets the financial threshold for entering into a swap. They would also have to appoint a chief compliance officer.
The obligations would be even tougher for dealers selling swaps to pension plans, municipalities, endowments or other similar entities. Dealers advising such entities on their swap transactions or strategies, rather than serving as a counterparty to the transaction, would have to act in the customer's best interest.
Ultimately, the proposals issued Wednesday would "level the playing field" in the swaps market and "ensure that customers in these transactions are treated fairly," SEC Chairman Mary Schapiro said at the meeting.
Last fall the CFTC proposed similar standards for the rest of the swaps market—and drew fire from banks that serve as swap dealers. The banks said the plan wouldn't give them enough legal certainty that they are serving as a counterparty rather than an adviser on swap transactions and therefore not under obligation to serve the customer's best interest.
The SEC sought to address these concerns by clarifying what counts as advice on a swaps transaction. Under its proposal, parties also could agree contractually that the dealer isn't serving as an adviser to a customer as long as certain tests are met, such as the customer has its own independent adviser, and the dealer discloses that it isn't acting in the customer's best interest. That would allow a dealer selling swaps to make recommendations to pension plans and similar entities without triggering the stiffer obligations.
Thursday, June 30, 2011
Former Schottenfeld Proprietary Trader David Plate Settles SEC Insider Trading Charges
The Securities and Exchange Commission announced today that on June 28, 2011, The Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York entered a judgment against David Plate in SEC v. Galleon Management, LP, et al., 09-CV-8811, an insider trading case the SEC filed on October 16, 2009. The SEC charged Plate, who was a registered representative and a proprietary trader at the broker-dealer Schottenfeld Group, LLC, during the relevant time period, with using inside information to trade ahead of an impending acquisition announcement.
In its action, the SEC alleged that, in March 2007, Plate was tipped inside information that Kronos Inc. would be acquired in about a week for a substantial premium. On the basis of the material non-public information he received, Plate traded in a Schottenfeld account he managed.
To settle the SEC's charges, Plate consented to the entry of a judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement of $43,876.37, plus prejudgment interest of $9,415.54. The judgment further provides that the Court later will determine issues relating to a civil penalty. Plate previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. David Plate, 10-CR-0056 (S.D.N.Y.).
In its action, the SEC alleged that, in March 2007, Plate was tipped inside information that Kronos Inc. would be acquired in about a week for a substantial premium. On the basis of the material non-public information he received, Plate traded in a Schottenfeld account he managed.
To settle the SEC's charges, Plate consented to the entry of a judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement of $43,876.37, plus prejudgment interest of $9,415.54. The judgment further provides that the Court later will determine issues relating to a civil penalty. Plate previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. David Plate, 10-CR-0056 (S.D.N.Y.).
Wednesday, June 29, 2011
Raymond James Settles ARS Case and Agrees to $300 million Buyback
As part of a settlement with eight states and the Securities and Exchange Commission, Raymond James Financial Inc. will buy back $300 million in auction-rate securities from clients and pay a fine of $1.7 million.
The states in charge of the settlement are Florida and Texas. Other states involved were Indiana, Missouri, New York, North Carolina, Pennsylvania and South Carolina.
Raymond James has 30 days to extend an offer to repurchase the securities, and the offer must be open for 75 days after that initial bid.
The states in charge of the settlement are Florida and Texas. Other states involved were Indiana, Missouri, New York, North Carolina, Pennsylvania and South Carolina.
Raymond James has 30 days to extend an offer to repurchase the securities, and the offer must be open for 75 days after that initial bid.
Monday, June 6, 2011
FINRA Files Complaint Against David Lerner Associates, Inc.
David Lerner Associates Inc. has been accused of targeting unsophisticated seniors while selling real estate investment trust shares without considering whether the illiquid securities were suitable for its clients.
The brokerage firm misled investors who bought more than $300 million of shares in the $2 billion Apple REIT Ten offering this year, the Financial Industry Regulatory Authority Inc. said last week in a disciplinary complaint posted on its website. The firm denies the allegations, according to a statement.
In soliciting customers for Apple REIT Ten, the firm provided misleading information about distribution rates for a series of predecessor securities that now are closed to investors, Finra said.
The firm has sold almost $6.8 billion of Apple REIT shares to more than 122,000 customers since 1992, according to Finra. Those sales have generated more than $600 million, accounting for more than 60% of the firm's business since 1996, Finra said.
The complaint is the first step in a formal proceeding, Finra said. It isn't filed in court, and the firm can request a hearing before a disciplinary panel, the regulator said in its statement.
The brokerage firm misled investors who bought more than $300 million of shares in the $2 billion Apple REIT Ten offering this year, the Financial Industry Regulatory Authority Inc. said last week in a disciplinary complaint posted on its website. The firm denies the allegations, according to a statement.
In soliciting customers for Apple REIT Ten, the firm provided misleading information about distribution rates for a series of predecessor securities that now are closed to investors, Finra said.
The firm has sold almost $6.8 billion of Apple REIT shares to more than 122,000 customers since 1992, according to Finra. Those sales have generated more than $600 million, accounting for more than 60% of the firm's business since 1996, Finra said.
The complaint is the first step in a formal proceeding, Finra said. It isn't filed in court, and the firm can request a hearing before a disciplinary panel, the regulator said in its statement.
Omni Brokerage, Inc. Closes
Another small, independent broker-dealer that faces mounting legal claims is exiting the business, this time after selling real estate deals by a bankrupt syndicator.
Omni Brokerage Inc. of South Jordan, Utah, said at the end of April that it would withdraw its registration with the Financial Industry Regulatory Authority Inc., according to its profile on BrokerCheck.
Omni reported a loss of $356,000 last year on revenue of $3 million.
In its annual Focus report filed in March with the Securities and Exchange Commission, the firm said that it had been named in several arbitration claims before Finra. The firm said that investors were seeking $2.8 million in compensatory damages.
Omni, which specialized in real estate investments, had net capital of $142,000, according to the SEC filing.
Omni Brokerage Inc. of South Jordan, Utah, said at the end of April that it would withdraw its registration with the Financial Industry Regulatory Authority Inc., according to its profile on BrokerCheck.
Omni reported a loss of $356,000 last year on revenue of $3 million.
In its annual Focus report filed in March with the Securities and Exchange Commission, the firm said that it had been named in several arbitration claims before Finra. The firm said that investors were seeking $2.8 million in compensatory damages.
Omni, which specialized in real estate investments, had net capital of $142,000, according to the SEC filing.
Monday, April 25, 2011
SEC Halts Fraudulent Beverly Hills Hedge Fund And Wealth Management Business
On April 22, 2011, the Securities and Exchange Commission obtained an emergency court order to shut down a Beverly Hills, Calif. hedge fund and wealth management business targeting retirees, university professors, and members of the Christian community.
The SEC alleges that IU Group Inc., its principal Elijah Bang, and its salesperson Daniel Lee targeted retirees and claimed on websites to have been founded by “devoted Christians who believe in God, Jesus Christ, and the Holy Spirit.” Lee allegedly also sent “cold call” e-mail solicitations to university professors.
It appears that IU Group was unsuccessful in obtaining any hedge fund investors or wealth management clients before the SEC’s emergency action halted its operations.
According to the SEC’s complaint filed in federal court in Los Angeles, Bang and Lee made numerous false representations to potential investors and wealth management clients, including the following statements:
The hedge fund was operational and had a successful performance history since January 2007.
The majority of IU Wealth’s clients are professional athletes, actors, producers, doctors, professors, politicians, and executives of private corporations.
IU Wealth has over $800 million under management.
The SEC alleges that IU Group Inc., its principal Elijah Bang, and its salesperson Daniel Lee targeted retirees and claimed on websites to have been founded by “devoted Christians who believe in God, Jesus Christ, and the Holy Spirit.” Lee allegedly also sent “cold call” e-mail solicitations to university professors.
It appears that IU Group was unsuccessful in obtaining any hedge fund investors or wealth management clients before the SEC’s emergency action halted its operations.
According to the SEC’s complaint filed in federal court in Los Angeles, Bang and Lee made numerous false representations to potential investors and wealth management clients, including the following statements:
The hedge fund was operational and had a successful performance history since January 2007.
The majority of IU Wealth’s clients are professional athletes, actors, producers, doctors, professors, politicians, and executives of private corporations.
IU Wealth has over $800 million under management.
Tuesday, April 19, 2011
SEC Charges Former Hedge Fund Portfolio Manager With Insider Trading
The Securities and Exchange Commission today charged a former hedge fund portfolio manager with insider trading in a bio-pharmaceutical company based on confidential information about negative results of the company’s clinical drug trial.
The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses.
The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information and received envelopes of cash in return according to the SEC’s amended complaint filed today in federal court in Manhattan to additionally charge Skowron. The hedge funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay back $33 million in ill-gotten gains.
In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.
According to the SEC’s amended complaint, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.
The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses.
The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information and received envelopes of cash in return according to the SEC’s amended complaint filed today in federal court in Manhattan to additionally charge Skowron. The hedge funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay back $33 million in ill-gotten gains.
In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.
According to the SEC’s amended complaint, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.
Wall Street Banks and SEC Near Deal on Toxic Mortgage Investments
U.S. securities regulators are in talks with several major Wall Street banks to settle fraud allegations related to mortgage-bond deals that helped unleash the financial crisis, according to people familiar with the matter.
U.S. securities regulators are in talks with several major Wall Street banks to settle fraud allegations related to mortgage-bond deals that helped unleash the financial crisis. Jean Eaglesham has details.
.The expected settlements, some of which could be reached as soon as next week, collectively mark the biggest attempt by enforcement agencies to hold Wall Street accountable for its role in the subprime mortgage bust.
The cases highlight the aggressive tactics banks used to sell these securities to investors who suffered big losses. They also show how the banks' desire to keep the $1 trillion mortgage securities business going helped fuel the housing bubble.
The Securities and Exchange Commission is aiming to reach a series of settlements with individual firms over the sales of the investments, rather than a big industrywide deal, according to people familiar with the matter.
The settlements are expected to vary significantly among banks—but few, if any, are expected to surpass the $550 million penalty that Goldman Sachs Group Inc. paid last year to settle allegations that it misled investors in a mortgage-bond investment called Abacus 2007-AC1. That penalty was the largest ever paid by a Wall Street firm to settle SEC charges. Goldman didn't admit or deny the allegations.
U.S. securities regulators are in talks with several major Wall Street banks to settle fraud allegations related to mortgage-bond deals that helped unleash the financial crisis. Jean Eaglesham has details.
.The expected settlements, some of which could be reached as soon as next week, collectively mark the biggest attempt by enforcement agencies to hold Wall Street accountable for its role in the subprime mortgage bust.
The cases highlight the aggressive tactics banks used to sell these securities to investors who suffered big losses. They also show how the banks' desire to keep the $1 trillion mortgage securities business going helped fuel the housing bubble.
The Securities and Exchange Commission is aiming to reach a series of settlements with individual firms over the sales of the investments, rather than a big industrywide deal, according to people familiar with the matter.
The settlements are expected to vary significantly among banks—but few, if any, are expected to surpass the $550 million penalty that Goldman Sachs Group Inc. paid last year to settle allegations that it misled investors in a mortgage-bond investment called Abacus 2007-AC1. That penalty was the largest ever paid by a Wall Street firm to settle SEC charges. Goldman didn't admit or deny the allegations.
Friday, April 15, 2011
Securities and Exchange Commission v. Inofin, Inc., Michael Cuomo, Kevin Mann, Sr., Melissa George, Thomas Keough, David Affeldt, Nancy Keough
SEC CHARGES SUBPRIME AUTO LOAN LENDER AND EXECUTIVES WITH FRAUD
The Securities and Exchange Commission announced that it filed a civil injunctive action today in federal district court in Massachusetts charging Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.
The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, and starting in 2004, approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors.
According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing through 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Nonetheless, Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The Commission’s complaint alleges that Inofin, Cuomo, Mann, and George violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Kevin Keough, and David Affeldt violated Sections 5(a), and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The Commission seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against Inofin, Cuomo, Mann, George, Kevin Keough, and David Affeldt. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.
The Securities and Exchange Commission announced that it filed a civil injunctive action today in federal district court in Massachusetts charging Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.
The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, and starting in 2004, approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors.
According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing through 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Nonetheless, Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The Commission’s complaint alleges that Inofin, Cuomo, Mann, and George violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Kevin Keough, and David Affeldt violated Sections 5(a), and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The Commission seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against Inofin, Cuomo, Mann, George, Kevin Keough, and David Affeldt. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.
Thursday, April 14, 2011
Proposed Rule Change to Amend the Customer and Industry Codes of Arbitration Procedure Relating to Motion Practice
Financial Industry Regulatory Authority, Inc.'s filing with the Securities and Exchange Commission of a proposed rule change to amend FINRA Rules 12206, 12503, and 12504 of the Code of Arbitration Procedure for Customer Disputes and Rules 13206, 13503, and 13504 of the Code of Arbitration Procedure for Industry Disputes to provide moving parties with a five-day period to reply to responses to motions has now been approved.
Wednesday, April 13, 2011
JPMorgan Ex-Structured Product CDO Head Llodra May Face SEC Suit
U.S. regulators notified a former JPMorgan Chase & Co. (JPM) executive whose unit packaged mortgage- linked investments that he may be sued for his role in selling the securities as the housing crisis worsened in 2007.
Michael Llodra, who was global head of structured-product collateralized debt obligations when he left JPMorgan, received a Wells notice from the Securities and Exchange Commission on Jan. 4 saying investigators planned to pursue civil claims against him related to the sale of a 2007 product, according to Llodra’s broker registration filings. The SEC also gave a Wells notice on Jan. 14 to Edward Steffelin, a former executive at a firm that helped manage JPMorgan’s 2007 “Squared” CDO, his brokerage records show.
The SEC has been probing whether JPMorgan, the second biggest U.S. bank by assets, and Steffelin’s former firm, GSC Group, misled investors about hedge-fund Magnetar Capital LLC’s possible role in selecting underlying assets in the $1.1 billion Squared deal, according to a person briefed on the matter who spoke on condition of anonymity because the probe isn’t public.
Magnetar has said it bought the junior-most slice of the Squared CDO as part of its strategy of investing in some mortgage-linked securities while betting against other housing debt, sometimes including bonds from the same deals. CDOs package assets such as mortgage bonds and buyout loans into new securities with varying risks.
Michael Llodra, who was global head of structured-product collateralized debt obligations when he left JPMorgan, received a Wells notice from the Securities and Exchange Commission on Jan. 4 saying investigators planned to pursue civil claims against him related to the sale of a 2007 product, according to Llodra’s broker registration filings. The SEC also gave a Wells notice on Jan. 14 to Edward Steffelin, a former executive at a firm that helped manage JPMorgan’s 2007 “Squared” CDO, his brokerage records show.
The SEC has been probing whether JPMorgan, the second biggest U.S. bank by assets, and Steffelin’s former firm, GSC Group, misled investors about hedge-fund Magnetar Capital LLC’s possible role in selecting underlying assets in the $1.1 billion Squared deal, according to a person briefed on the matter who spoke on condition of anonymity because the probe isn’t public.
Magnetar has said it bought the junior-most slice of the Squared CDO as part of its strategy of investing in some mortgage-linked securities while betting against other housing debt, sometimes including bonds from the same deals. CDOs package assets such as mortgage bonds and buyout loans into new securities with varying risks.
Tuesday, April 12, 2011
UBS Fined By FINRA For Lehman Principal Protected Note Meltdown
The Financial Industry Regulatory Authority imposed a $2.5 million fine on UBS AG's (UBS) wealth-management services unit and ordered $8.25 million in restitution in settlement of charges that it had misled investors about the risk of default in certain Lehman Brothers Holdings Inc. notes.
In the months leading up to Lehman's collapse, UBS Financial Services Inc. advertised the investment bank's so-called principal-protection notes without emphasizing that the debt was still unsecured, Finra said. Lehman eventually filed for bankruptcy in September 2008.
PPNs are fixed-income securities with a bond and an option component that promise a minimum return equal to the investor's initial investment. They don't guarantee the principal in the event of a default.
"This matter underscores a firm's need to be clear and comprehensive in disclosing risks of the structured products it sells to retail investors," Finra enforcement chief Brad Bennett said. "In cases, UBS's financial advisers did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer's credit risk so investors would understand the magnitude of the potential losses."
In the months leading up to Lehman's collapse, UBS Financial Services Inc. advertised the investment bank's so-called principal-protection notes without emphasizing that the debt was still unsecured, Finra said. Lehman eventually filed for bankruptcy in September 2008.
PPNs are fixed-income securities with a bond and an option component that promise a minimum return equal to the investor's initial investment. They don't guarantee the principal in the event of a default.
"This matter underscores a firm's need to be clear and comprehensive in disclosing risks of the structured products it sells to retail investors," Finra enforcement chief Brad Bennett said. "In cases, UBS's financial advisers did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer's credit risk so investors would understand the magnitude of the potential losses."
Thursday, April 7, 2011
U.S. appeals court upholds Jeff Skilling conviction
Former Enron Chief Executive Jeffrey Skilling was unsuccessful in his latest bid to overturn his criminal conviction as a U.S. appeals court called any errors in his trial "harmless."
A jury convicted Skilling in 2006 on 19 counts, including conspiracy and securities fraud, in connection with the collapse of the one-time energy trading giant. Prosecutors said Skilling's fraud was an elaborate ruse to fool investors into believing the shaky company was healthy.
He was sentenced to 292 months in prison. However, the U.S. Supreme Court later invalidated one theory underpinning the conspiracy conviction, and instructed the appeals court to review the case again.
The U.S. 5th Circuit Court of Appeals on Wednesday found that any error committed by the trial judge was "harmless." Skilling's challenge to all of his convictions must fail, the appeals court ruled.
A jury convicted Skilling in 2006 on 19 counts, including conspiracy and securities fraud, in connection with the collapse of the one-time energy trading giant. Prosecutors said Skilling's fraud was an elaborate ruse to fool investors into believing the shaky company was healthy.
He was sentenced to 292 months in prison. However, the U.S. Supreme Court later invalidated one theory underpinning the conspiracy conviction, and instructed the appeals court to review the case again.
The U.S. 5th Circuit Court of Appeals on Wednesday found that any error committed by the trial judge was "harmless." Skilling's challenge to all of his convictions must fail, the appeals court ruled.
Monday, April 4, 2011
Wachoiva to Face SEC Civil Charges Over Mortgage Backed Bond Deals
The Securities and Exchange Commission is preparing to bring civil charges against Wachovia Corp., the once-troubled bank now owned by Wells Fargo & Co., for allegedly overpricing mortgage-bond deals, according to people familiar with the matter.
The agency has focused on the amounts Wachovia charged investors for collateralized debt obligations, a type of security created by packaging mortgages, according to people familiar with the matter. SEC officials believe the Charlotte, N.C., bank applied excessive markups that didn't reflect the diminishing value of the underlying loans, according to people familiar with the matter.
Wells Fargo, which assumed Wachovia's liabilities when it purchased the bank for $19.36 billion in 2008, declined to comment. John Nester, a spokesman for the SEC, also declined to comment.
The Wachovia inquiry is part of a broader probe by the SEC into Wall Street's sales of about $1 trillion worth of CDOs. Banks' appetite for the lucrative deals fueled the demand for the risky subprime mortgages underlying many of the bonds. But the housing collapse dragged down the value of CDOs, spreading losses to investors around the world.
As part of its broad probe, the SEC, which has stepped up efforts to hold Wall Street accountable for some of the losses during the financial crisis, has issued subpoenas for documents and interviewed officials from nearly every bank or securities firm that was a major player in creating, selling or trading CDOs. The agency is in discussions with firms and could announce charges and settlements concurrently, said one person familiar with the matter. Banks that received SEC subpoenas include Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co., Morgan Stanley and UBS AG.
The agency has focused on the amounts Wachovia charged investors for collateralized debt obligations, a type of security created by packaging mortgages, according to people familiar with the matter. SEC officials believe the Charlotte, N.C., bank applied excessive markups that didn't reflect the diminishing value of the underlying loans, according to people familiar with the matter.
Wells Fargo, which assumed Wachovia's liabilities when it purchased the bank for $19.36 billion in 2008, declined to comment. John Nester, a spokesman for the SEC, also declined to comment.
The Wachovia inquiry is part of a broader probe by the SEC into Wall Street's sales of about $1 trillion worth of CDOs. Banks' appetite for the lucrative deals fueled the demand for the risky subprime mortgages underlying many of the bonds. But the housing collapse dragged down the value of CDOs, spreading losses to investors around the world.
As part of its broad probe, the SEC, which has stepped up efforts to hold Wall Street accountable for some of the losses during the financial crisis, has issued subpoenas for documents and interviewed officials from nearly every bank or securities firm that was a major player in creating, selling or trading CDOs. The agency is in discussions with firms and could announce charges and settlements concurrently, said one person familiar with the matter. Banks that received SEC subpoenas include Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co., Morgan Stanley and UBS AG.
Thursday, March 31, 2011
SEC Charges South Florida Man And Woman In $30 Million Ponzi Scheme
The Securities and Exchange Commission today charged two South Florida residents for conducting a $30 million Ponzi scheme with funds primarily raised by offering and selling unregistered investment contracts and promissory notes to hundreds of investors nationwide from 2005 until the summer of 2007.
The SEC alleges that James Clements and Zeina Smidi of Plantation, Florida, through the companies they jointly controlled: MRT, LLC; MRT Holdings, LTD; and Maximum Return Transaction, LLC, collectively “MRT”; operated a Ponzi scheme that offered investors guaranteed monthly returns as high as 11%. From 2005 until the end of 2006, MRT, Clements and Smidi told investors that MRT used investor proceeds to trade foreign currencies and touted MRT’s investment success to draw in new investors. The SEC’s complaint further alleges that MRT and Clements used certain investors who agreed to be “account managers” to solicit hundreds of investors through informal gatherings and word of mouth.
According to the SEC’s complaint, Clements explained that from the foreign currency trading profits, MRT would pay a small percentage of each investor’s returns to the investors’ account manager, pay each investor their promised rate of return, and keep any excess profits. Clements and account managers referred investors to Smidi who provided investors information on how to effect their investment in MRT and where to wire funds.
The SEC alleges that James Clements and Zeina Smidi of Plantation, Florida, through the companies they jointly controlled: MRT, LLC; MRT Holdings, LTD; and Maximum Return Transaction, LLC, collectively “MRT”; operated a Ponzi scheme that offered investors guaranteed monthly returns as high as 11%. From 2005 until the end of 2006, MRT, Clements and Smidi told investors that MRT used investor proceeds to trade foreign currencies and touted MRT’s investment success to draw in new investors. The SEC’s complaint further alleges that MRT and Clements used certain investors who agreed to be “account managers” to solicit hundreds of investors through informal gatherings and word of mouth.
According to the SEC’s complaint, Clements explained that from the foreign currency trading profits, MRT would pay a small percentage of each investor’s returns to the investors’ account manager, pay each investor their promised rate of return, and keep any excess profits. Clements and account managers referred investors to Smidi who provided investors information on how to effect their investment in MRT and where to wire funds.
SEC Investigating Reverse Convertibles
The Securities and Exchange Commission is investigating whether Wall Street firms sold a complex type of bond without clarifying the risks attached to it, the Wall Street Journal said, citing people familiar with the matter.
The financial product known as "reverse convertible notes" pays interest but also is tied to the performance of an underlying stock, so if the stock falls, investors could lose money, the WSJ said.
The regulators are also looking into the disclosures of potential conflict of interest, such as a bank selling a note linked to the stock of a company it is advising, the newspaper said.
In addition, Wall Street regulator Financial Industry Regulatory Authority was likely to impose a large fine against a brokerage firm for improperly selling reverse convertible notes, the WSJ said, citing people familiar with the matter.
The financial product known as "reverse convertible notes" pays interest but also is tied to the performance of an underlying stock, so if the stock falls, investors could lose money, the WSJ said.
The regulators are also looking into the disclosures of potential conflict of interest, such as a bank selling a note linked to the stock of a company it is advising, the newspaper said.
In addition, Wall Street regulator Financial Industry Regulatory Authority was likely to impose a large fine against a brokerage firm for improperly selling reverse convertible notes, the WSJ said, citing people familiar with the matter.
Saturday, March 26, 2011
SEC Obtains Asset Freeze And Other Relief In $47 Million Offering Fraud
On March 25, 2011, the Securities and Exchange Commission obtained an emergency asset freeze in a $47 million offering fraud and Ponzi scheme orchestrated by John Scott Clark (Clark) through Impact Cash, LLC and Impact Payment Systems, LLC (collectively Impact), companies owned and controlled by Clark, which operated an online payday loan company. In addition to the asset freeze, the court has appointed a receiver to preserve and marshal assets for the benefit of investors. That Receiver is Gil A. Miller.
The complaint alleges that from March 2006 through September 2010, Impact and Clark (by himself and through sales persons) raised more than $47 million from at least 120 investors for the stated purposes of funding payday loans, purchasing lists of leads for payday loan customers, and paying the operating expenses of Impact. The complaint further alleges that Clark did not deploy investor capital to make payday loans as represented, but instead diverted investor funds to maintain a lavish lifestyle, including buying expensive cars, art and a home theatre system. Clark also misappropriated investor money to fund outside business ventures and used new investor funds to pay purported profits to earlier investors.
The Commission’s complaint charges Impact and Clark with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and charges Clark with violations of Section 15(a) of the Exchange Act. The complaint seeks a preliminary and permanent injunction as well as disgorgement
The complaint alleges that from March 2006 through September 2010, Impact and Clark (by himself and through sales persons) raised more than $47 million from at least 120 investors for the stated purposes of funding payday loans, purchasing lists of leads for payday loan customers, and paying the operating expenses of Impact. The complaint further alleges that Clark did not deploy investor capital to make payday loans as represented, but instead diverted investor funds to maintain a lavish lifestyle, including buying expensive cars, art and a home theatre system. Clark also misappropriated investor money to fund outside business ventures and used new investor funds to pay purported profits to earlier investors.
The Commission’s complaint charges Impact and Clark with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and charges Clark with violations of Section 15(a) of the Exchange Act. The complaint seeks a preliminary and permanent injunction as well as disgorgement
Wednesday, March 23, 2011
SEC Charges Three Firms And Four Individuals In Los Angeles-Based Boiler Room Operation
The Securities and Exchange Commission today charged three firms and four individuals involved in a boiler room scheme operating out of Los Angeles that defrauded investors who they persuaded to buy purportedly profitable trading systems.
The SEC alleges that representatives of Spyglass Equity Systems Inc. cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.
Along with FCP, FS and Howard, Spyglass and its owners – Richard L. Carter, Preston L. Sjoblom and Tyson D. Elliott – also are charged with fraud in connection with the unregistered securities offerings.
According to the SEC’s complaint filed in federal court in the Central District of California, Howard conspired with Spyglass to sell the securities, and Spyglass earned an estimated $1 million in the deal. The trading systems pitched to investors by Spyglass representatives could only be used if the investor also funded a brokerage account at FCP. However, FCP was not a broker-dealer and thus could not offer brokerage services to customers.
The SEC alleges that Spyglass representatives falsely touted a successful performance history and level of automation of the trading systems, and misled investors to believe that FCP had a positive reputation and solid affiliations in the brokerage industry. To seal the deal, Spyglass offered investors a money-back guarantee if the system did not generate a profit within the first 180 days of trading. However it was only after an investor paid Spyglass a license fee of about $6,000 that Spyglass put the investor in contact with Flatiron, ostensibly to open a brokerage account.
The SEC alleges that representatives of Spyglass Equity Systems Inc. cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.
Along with FCP, FS and Howard, Spyglass and its owners – Richard L. Carter, Preston L. Sjoblom and Tyson D. Elliott – also are charged with fraud in connection with the unregistered securities offerings.
According to the SEC’s complaint filed in federal court in the Central District of California, Howard conspired with Spyglass to sell the securities, and Spyglass earned an estimated $1 million in the deal. The trading systems pitched to investors by Spyglass representatives could only be used if the investor also funded a brokerage account at FCP. However, FCP was not a broker-dealer and thus could not offer brokerage services to customers.
The SEC alleges that Spyglass representatives falsely touted a successful performance history and level of automation of the trading systems, and misled investors to believe that FCP had a positive reputation and solid affiliations in the brokerage industry. To seal the deal, Spyglass offered investors a money-back guarantee if the system did not generate a profit within the first 180 days of trading. However it was only after an investor paid Spyglass a license fee of about $6,000 that Spyglass put the investor in contact with Flatiron, ostensibly to open a brokerage account.
Sunday, March 20, 2011
Judge Halts Securities America Class Action Settlement
In a potentially costly blow to the brokerage firm Securities America, a federal judge in Dallas ruled on Friday that hundreds of arbitration claims against the company should move forward rather than being stuffed into a catch-all class-action lawsuit.
The case, which was heard by Judge Royal Furgeson, stems from litigation against Securities America, a division of Ameriprise Financial, one of the country’s largest advisory firms. Securities America sold hundreds of millions of dollars of so-called private placement notes in Medical Capital Holdings, which in 2009 was found to be fraud. Since then, Securities America has come under fire for failing to provide adequate due diligence on Medical Capital.
Many investors filed arbitration claims against Securities America. Recently, however, Ameriprise, Securities America and class-action lawyers, who represent other clients of the brokerage firm, struck an agreement that would affect all investors — regardless of how they chose to make their legal claim. Collectively, investors lost about $400 million. The deal would have halted all arbitration claims, leaving investors with the ability to recoup about 10 cents on the dollar from a settlement fund worth $48 million.
On Friday, lawyers who attended the session said Securities America pleaded poverty, saying the firm did not have enough cash on hand to pay if the arbitration claims start to add up. Regardless, the judge ruled that the arbitration claims should move forward along with two separate state enforcement actions that class-action lawyers had also tried to halt.
The case, which was heard by Judge Royal Furgeson, stems from litigation against Securities America, a division of Ameriprise Financial, one of the country’s largest advisory firms. Securities America sold hundreds of millions of dollars of so-called private placement notes in Medical Capital Holdings, which in 2009 was found to be fraud. Since then, Securities America has come under fire for failing to provide adequate due diligence on Medical Capital.
Many investors filed arbitration claims against Securities America. Recently, however, Ameriprise, Securities America and class-action lawyers, who represent other clients of the brokerage firm, struck an agreement that would affect all investors — regardless of how they chose to make their legal claim. Collectively, investors lost about $400 million. The deal would have halted all arbitration claims, leaving investors with the ability to recoup about 10 cents on the dollar from a settlement fund worth $48 million.
On Friday, lawyers who attended the session said Securities America pleaded poverty, saying the firm did not have enough cash on hand to pay if the arbitration claims start to add up. Regardless, the judge ruled that the arbitration claims should move forward along with two separate state enforcement actions that class-action lawyers had also tried to halt.
Thursday, March 17, 2011
SEC Charges Three Executives With Conducting $230 Million Investment Scheme At Ohio-Based Company
The Securities and Exchange Commission announced that, on March 16, 2011, it filed a civil action in the United States District Court for the Southern District of Indiana, charging three senior executives at Akron, Ohio-based Fair Finance Company (“Fair Finance”) with orchestrating a $230 million fraudulent scheme involving at least 5,200 investors – many of them elderly.
The Commission’s complaint alleges that after purchasing Fair Finance Company, chief executive officer Timothy S. Durham, chairman James F. Cochran and chief financial officer Rick D. Snow, deceived investors while selling them interest-bearing certificates. Fair Finance had previously operated for decades as a privately-held consumer finance company. But under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others, as well as struggling and unprofitable entities that they controlled. Durham and Cochran further misused investor funds to buy classic cars and other luxury items to enhance their own lavish lifestyles.
In a parallel criminal proceeding the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Indiana unsealed criminal charges against Durham, Cochran and Snow for the same alleged misconduct.
The Commission’s complaint alleges that after purchasing Fair Finance Company, chief executive officer Timothy S. Durham, chairman James F. Cochran and chief financial officer Rick D. Snow, deceived investors while selling them interest-bearing certificates. Fair Finance had previously operated for decades as a privately-held consumer finance company. But under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others, as well as struggling and unprofitable entities that they controlled. Durham and Cochran further misused investor funds to buy classic cars and other luxury items to enhance their own lavish lifestyles.
In a parallel criminal proceeding the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Indiana unsealed criminal charges against Durham, Cochran and Snow for the same alleged misconduct.
Sunday, March 6, 2011
CDO Fraud Probes to Be 2011 Priority
U.S. criminal investigators will step up probes into possible fraud involving collateralized debt obligations and credit default swaps, a top federal prosecutor in New York said.
Christopher Garcia, chief of the Securities and Commodities Fraud Task Force in the U.S. Attorney’s Office in Manhattan, told white-collar criminal-defense lawyers at a conference today that his office will spend this year investigating possible fraud involving CDOs and CDSs.
“If there’s crime there, we’re going to find it and we’re going to pursue it,” Garcia said at an American Bar Association meeting in San Diego. Investigators won’t be deterred by the complexity of the financial instruments, he said.
CDOs are pools of assets such as mortgage bonds packaged into new securities. Interest payments on the underlying bonds or loans are used to pay investors.
Christopher Garcia, chief of the Securities and Commodities Fraud Task Force in the U.S. Attorney’s Office in Manhattan, told white-collar criminal-defense lawyers at a conference today that his office will spend this year investigating possible fraud involving CDOs and CDSs.
“If there’s crime there, we’re going to find it and we’re going to pursue it,” Garcia said at an American Bar Association meeting in San Diego. Investigators won’t be deterred by the complexity of the financial instruments, he said.
CDOs are pools of assets such as mortgage bonds packaged into new securities. Interest payments on the underlying bonds or loans are used to pay investors.
Tuesday, March 1, 2011
Puerto Rico Conservation Trust Fund Secured Notes
Aidikoff, Uhl & Bakhtiari is investigating potential claims on behalf of investors who sustained losses in Puerto Rico Conservation Trust Fund Secured Notes 5.90%, due April 15, 2034. Issued on March 31, 2004, the Notes were underwritten by UBS Financial Services, Inc. of Puerto Rico, Popular Securities, R-G Investments Corp. and Santander Securities Corp. Approximately $100 million of the Notes were sold to investors.
Investors who sustained losses in Puerto Rico Conservation Trust Fund Secured Notes can contact AU&B to explore their options.
Investors who sustained losses in Puerto Rico Conservation Trust Fund Secured Notes can contact AU&B to explore their options.
Wednesday, February 23, 2011
SEC Charges Attorney with Fraud for Issuing False Legal Opinion in Connection with Illegal Stock Offering
On February 10, 2011, the Commission amended its complaint in SEC v. Greenstone Holdings, Inc., et al., 10 civ. 1302 (S.D.N.Y.), to add as a defendant Virginia K. Sourlis, a securities lawyer. According to the amended complaint, in early 2006, Sourlis intentionally authored a materially false and misleading legal opinion, which Greenstone used to illegally issue millions of shares of stock in unregistered transactions. Among other things, Sourlis falsely described promissory notes, note holders, and communications with those holders, none of which actually existed. The SEC alleges that, contrary to Sourlis’ fraudulent opinion letter, the stock issuance did not qualify for an exemption from registration under the federal securities laws.
The amended complaint alleges that Sourlis violated Sections 5 of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder and aided and abetted defendant Greenstone’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks injunctive relief and financial penalties, disgorgement, and a penny stock bar from Sourlis.
The amended complaint alleges that Sourlis violated Sections 5 of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder and aided and abetted defendant Greenstone’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks injunctive relief and financial penalties, disgorgement, and a penny stock bar from Sourlis.
Saturday, February 19, 2011
SEC Charges Filed in $7 Million Pump and Dump Scheme
Today, the Commission filed a complaint against
Jonathan R. Curshen, 46, a Sarasota, Florida resident who allegedly founded and led Red Sea Management Ltd., (“Red Sea”), a Costa Rican asset protection company that, according to the complaint, effected pump-and-dump schemes on behalf of its clients and laundered millions of dollars in trading proceeds out of the United States to its clients;
David C. Ricci, 39, and Ronny Morales Salazar, 39, of San Jose, Costa Rica, whom the complaint describes as Red Sea stock traders;
Ariav “Eric” Weinbaum, 37, and Yitzchak (or Izhack) Zigdon, 47, of Israel, allegedly two of Red Sea’s clients;
Robert L. Weidenbaum, 44, of Coral Gables, Florida, allegedly a stock promoter who operates a company called CLX & Associates, Inc.; and
Michael S. Krome, 49, a Lake Grove, New York lawyer, who allegedly wrote a fraudulent opinion letter for their respective roles in a fraudulent pump-and-dump scheme in the common stock of CO2 Tech Ltd. that was carried out from late 2006 through April 2007.
According to the complaint, the defendants’ coordinated misconduct enabled them to sell CO2 Tech stock at artificially inflated prices, resulting in profits of over $7 million. Defendant Ricci simultaneously offered to settle with the Commission in a consent submitted for the Court’s consideration.
Jonathan R. Curshen, 46, a Sarasota, Florida resident who allegedly founded and led Red Sea Management Ltd., (“Red Sea”), a Costa Rican asset protection company that, according to the complaint, effected pump-and-dump schemes on behalf of its clients and laundered millions of dollars in trading proceeds out of the United States to its clients;
David C. Ricci, 39, and Ronny Morales Salazar, 39, of San Jose, Costa Rica, whom the complaint describes as Red Sea stock traders;
Ariav “Eric” Weinbaum, 37, and Yitzchak (or Izhack) Zigdon, 47, of Israel, allegedly two of Red Sea’s clients;
Robert L. Weidenbaum, 44, of Coral Gables, Florida, allegedly a stock promoter who operates a company called CLX & Associates, Inc.; and
Michael S. Krome, 49, a Lake Grove, New York lawyer, who allegedly wrote a fraudulent opinion letter for their respective roles in a fraudulent pump-and-dump scheme in the common stock of CO2 Tech Ltd. that was carried out from late 2006 through April 2007.
According to the complaint, the defendants’ coordinated misconduct enabled them to sell CO2 Tech stock at artificially inflated prices, resulting in profits of over $7 million. Defendant Ricci simultaneously offered to settle with the Commission in a consent submitted for the Court’s consideration.
Thursday, February 17, 2011
Barrington man charged in $105M Ponzi scheme
Daniel Spitzer promised his investors a good deal: low risk and sizeable returns if they agreed to put their money into a fund he told them he invested primarily in foreign currency trading, authorities announced today.
But instead of investing, Spitzer took most the money he obtained from about 400 people and used it to pay off other investors in what amounted to a $105 million Ponzi scheme, according to an indictment filed Thursday against Spitzer.
Spitzer, 51, who currently lives in Barrington, allegedly controlled 12 investment funds, known as “the Kenzie Funds,” which he told potential investors had never lost money and had achieved historical returns.
In reality, federal authorities said that Spitzer only invested about one third of the money raised from investors, which yielded a total net return of less than 1 percent. As of June 30, 2009, the Kenzie Funds only had about $4 million in bank accounts, though Spitzer had told investors it was worth about $250 million, according to the indictment.
“Daniel Spitzer made Ponzi-type payments to investors, made and caused to be made misrepresentations about the status of investments, and took other steps to lull investors into false sense of security that their investments were safe and profitable,” the indictment stated.
Spitzer now faces eight counts of mail fraud, which each carry a maximum penalty of 20 years in prison and a $250,000 fine.
But instead of investing, Spitzer took most the money he obtained from about 400 people and used it to pay off other investors in what amounted to a $105 million Ponzi scheme, according to an indictment filed Thursday against Spitzer.
Spitzer, 51, who currently lives in Barrington, allegedly controlled 12 investment funds, known as “the Kenzie Funds,” which he told potential investors had never lost money and had achieved historical returns.
In reality, federal authorities said that Spitzer only invested about one third of the money raised from investors, which yielded a total net return of less than 1 percent. As of June 30, 2009, the Kenzie Funds only had about $4 million in bank accounts, though Spitzer had told investors it was worth about $250 million, according to the indictment.
“Daniel Spitzer made Ponzi-type payments to investors, made and caused to be made misrepresentations about the status of investments, and took other steps to lull investors into false sense of security that their investments were safe and profitable,” the indictment stated.
Spitzer now faces eight counts of mail fraud, which each carry a maximum penalty of 20 years in prison and a $250,000 fine.
Wednesday, February 16, 2011
Florida Man Sentenced 17 Years for Investment Fraud
A man has been sentenced to 17 years in prison for his role in a Ponzi scheme that scammed more than $14 million from hundreds of Haitian-American investors in South Florida and New Jersey.
U.S. District Court Judge Kenneth Marra sentenced 37-year-old Ronnie Bass Jr. of Delray Beach on Friday and ordered him to pay nearly $4 million in restitution. Victims of the scam who invested with the Homepals Investment Club fear they may never see their money.
The attorney for Bass had aruged in court that his client should be sentenced to 10 years in prison since two others involved in the scheme received 5-year sentences.
Prosecutors argued that the others had cooperated with investigators and asked for a lenghty sentence.
U.S. District Court Judge Kenneth Marra sentenced 37-year-old Ronnie Bass Jr. of Delray Beach on Friday and ordered him to pay nearly $4 million in restitution. Victims of the scam who invested with the Homepals Investment Club fear they may never see their money.
The attorney for Bass had aruged in court that his client should be sentenced to 10 years in prison since two others involved in the scheme received 5-year sentences.
Prosecutors argued that the others had cooperated with investigators and asked for a lenghty sentence.
Monday, February 14, 2011
Downey man who ran a Ponzi scheme for 15 years faces sentencing
Prosecutors are expected to ask a judge today to send a man to prison for 15 years for running a Ponzi scheme that took in about $30 million as well as a scam that preyed on homeowners facing foreclosure.
Juan Rangel of Downey, who is already behind bars awaiting sentencing for a 2009 conviction for bribing a Bank of America branch manager, pleaded guilty last October before U.S. District Judge S. James Otero to one count each of mail fraud and money laundering.
Rangel, 47, was indicted last year in Los Angeles federal court on charges that he and his Commerce-based company, Financial Plus Investments, recruited investors through Spanish-language newspapers, magazines, radio spots and infomercials.
Prosecutors said investors were promised guaranteed returns of 60 percent each year out of the profits from Rangel's real estate investments and his lending business.
Instead, Rangel used the victims' cash to make monthly mortgage payments on his $3 million home, to lease a Lamborghini and a limousine, and to buy cocaine, prosecutors said.
Rangel participated in "a scheme to defraud investors" and used the U.S. mail to do so, Otero said at a 2010 hearing.
In the related mortgage fraud scheme, Rangel and others targeted Spanish-speaking homeowners who were at risk of losing their homes and offered to help them avoid foreclosure, Assistant U.S. Attorney James A. Bowman said.
Rather than assist them, however, Rangel took titles to their homes and drained the remaining equity out of the properties, the prosecutor said.
Juan Rangel of Downey, who is already behind bars awaiting sentencing for a 2009 conviction for bribing a Bank of America branch manager, pleaded guilty last October before U.S. District Judge S. James Otero to one count each of mail fraud and money laundering.
Rangel, 47, was indicted last year in Los Angeles federal court on charges that he and his Commerce-based company, Financial Plus Investments, recruited investors through Spanish-language newspapers, magazines, radio spots and infomercials.
Prosecutors said investors were promised guaranteed returns of 60 percent each year out of the profits from Rangel's real estate investments and his lending business.
Instead, Rangel used the victims' cash to make monthly mortgage payments on his $3 million home, to lease a Lamborghini and a limousine, and to buy cocaine, prosecutors said.
Rangel participated in "a scheme to defraud investors" and used the U.S. mail to do so, Otero said at a 2010 hearing.
In the related mortgage fraud scheme, Rangel and others targeted Spanish-speaking homeowners who were at risk of losing their homes and offered to help them avoid foreclosure, Assistant U.S. Attorney James A. Bowman said.
Rather than assist them, however, Rangel took titles to their homes and drained the remaining equity out of the properties, the prosecutor said.
Tuesday, February 8, 2011
Enough Transparency in the Municipal Bond Market?
The municipal bond market, already under a dark cloud due to rising risk levels, apparently has a pattern of lax financial reporting practices that could further elevate concerns about the market.
A new study from DPC Data Inc. found that bond-issuing municipalities in general are delaying or ignoring their annual financial disclosure reporting requirements.
In a sample analysis of 17,056 muni bonds, DPC found that 40% failed to meet self-reporting of financial disclosure requirements in 2009, the most recent fiscal year studied.
That is up from 36% in 2008 and 33% during the period from 2005 through 2007.
Of those municipalities that are submitting financial reports to the Municipal Securities Rulemaking Board's Electronic Municipal Market Access system, many are filing more than 180 days late.
In fact, nearly three quarters of the studied bond offers either did not file required financial statements or filed so late that they were useless for credit analysis, according to DPC chief executive Peter Schmitt.
A new study from DPC Data Inc. found that bond-issuing municipalities in general are delaying or ignoring their annual financial disclosure reporting requirements.
In a sample analysis of 17,056 muni bonds, DPC found that 40% failed to meet self-reporting of financial disclosure requirements in 2009, the most recent fiscal year studied.
That is up from 36% in 2008 and 33% during the period from 2005 through 2007.
Of those municipalities that are submitting financial reports to the Municipal Securities Rulemaking Board's Electronic Municipal Market Access system, many are filing more than 180 days late.
In fact, nearly three quarters of the studied bond offers either did not file required financial statements or filed so late that they were useless for credit analysis, according to DPC chief executive Peter Schmitt.
Monday, February 7, 2011
Studio City Man Faces Securities Fraud Charges In Alabama
Authorities say three men are facing securities fraud charges involving what officials call a multimillion-dollar investment scam.
Jail records show 37-year-old Paul Liggett of Fenton, Mo., was booked into the Baldwin County Corrections Center on Thursday and was released on $35,000 bail. On Jan. 28, 33-year-old Michael David Judd of Studio City, Calif., was booked and later released on $100,000 bail.
Both men are scheduled to be arraigned March 18 in Baldwin County Circuit Court.
Charges for both men stem from an alleged scheme involving 38-year-old Richard Tucker of Robertsdale, and his company, Synergy Finance Group. Tucker is due in court next week.
Officials say agents persuaded investors to wire money to Synergy accounts with the promise of multimillion-dollar returns.
Jail records show 37-year-old Paul Liggett of Fenton, Mo., was booked into the Baldwin County Corrections Center on Thursday and was released on $35,000 bail. On Jan. 28, 33-year-old Michael David Judd of Studio City, Calif., was booked and later released on $100,000 bail.
Both men are scheduled to be arraigned March 18 in Baldwin County Circuit Court.
Charges for both men stem from an alleged scheme involving 38-year-old Richard Tucker of Robertsdale, and his company, Synergy Finance Group. Tucker is due in court next week.
Officials say agents persuaded investors to wire money to Synergy accounts with the promise of multimillion-dollar returns.
Wednesday, February 2, 2011
SEC Approves FINRA Proposal to Give Investors Permanent Option of All Public Arbitration Panels
The Financial Industry Regulatory Authority (FINRA) today announced that the Securities and Exchange Commission (SEC) has approved its proposed rule change to provide customers in all FINRA arbitrations the option of having an all public panel. Historically, in cases with three arbitrators, the panels have been comprised of two public arbitrators and one arbitrator with a nexus to the securities industry. The amended rules will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.
"This change will give investors an additional choice in selecting their arbitrators when they file claims,” said Richard Ketchum, FINRA Chairman and Chief Executive Officer. “We believe that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process.”
FINRA sought the SEC’s approval for the rule change in October after results of a 27-month pilot program showed that investors presented with this option chose the new method of arbitrator selection nearly 60 percent of the time. Investors regularly accepted a non-public arbitrator, but the ability to choose the circumstances improved their perception of the process. Participation in FINRA’s Public Arbitrator Pilot Program was voluntary and ultimately included the participation of 14 firms.
“There was strong support from investor and consumer groups for giving arbitration customers the right to decide whether their panel should include a non-public member,” said Ketchum.
"This change will give investors an additional choice in selecting their arbitrators when they file claims,” said Richard Ketchum, FINRA Chairman and Chief Executive Officer. “We believe that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process.”
FINRA sought the SEC’s approval for the rule change in October after results of a 27-month pilot program showed that investors presented with this option chose the new method of arbitrator selection nearly 60 percent of the time. Investors regularly accepted a non-public arbitrator, but the ability to choose the circumstances improved their perception of the process. Participation in FINRA’s Public Arbitrator Pilot Program was voluntary and ultimately included the participation of 14 firms.
“There was strong support from investor and consumer groups for giving arbitration customers the right to decide whether their panel should include a non-public member,” said Ketchum.
Saturday, January 29, 2011
Investment Adviser Charged in Fraud Case
The Securities and Exchange Commission charged a Connecticut man with misappropriating at least $53 million of investor funds, saying he invested the money for himself.
The SEC alleges that Francisco Illarramendi defrauded investors in the hedge funds he managed by improperly transferring their money into bank accounts he personally controlled and then investing that money in private-equity investments, including a developmental-stage West Coast nuclear energy company and a manufacturing company in early development of clean-tech mass-transportation alternatives.
His biggest investor, an unnamed foreign company pension fund, contributed 90% of the money in his funds, the SEC said in a complaint filed Friday in federal court in Connecticut. Other investors were also based offshore.
Mr. Illarramendi, 41 years old, is the majority owner of Stamford, Conn.-based Michael Kenwood Group, LLC, an unregistered investment adviser, which in turn owns a number of entities through which Mr. Illarramendi advised hedge funds. According to a filing with the Financial Industry Regulatory Authority, he worked at Credit Suisse from 1994 to 2004 and was recently affiliated with a Stamford-based registered investment adviser, Highview Point Partners.
The SEC alleges that Francisco Illarramendi defrauded investors in the hedge funds he managed by improperly transferring their money into bank accounts he personally controlled and then investing that money in private-equity investments, including a developmental-stage West Coast nuclear energy company and a manufacturing company in early development of clean-tech mass-transportation alternatives.
His biggest investor, an unnamed foreign company pension fund, contributed 90% of the money in his funds, the SEC said in a complaint filed Friday in federal court in Connecticut. Other investors were also based offshore.
Mr. Illarramendi, 41 years old, is the majority owner of Stamford, Conn.-based Michael Kenwood Group, LLC, an unregistered investment adviser, which in turn owns a number of entities through which Mr. Illarramendi advised hedge funds. According to a filing with the Financial Industry Regulatory Authority, he worked at Credit Suisse from 1994 to 2004 and was recently affiliated with a Stamford-based registered investment adviser, Highview Point Partners.
Friday, January 28, 2011
NIR Group Probe
Hedge fund manager Corey Ribotsky recently sent a letter to his investors in his NIR Group telling them he has been the subject of "rumor and innuendo" and that his firm did nothing wrong.
Ribotsky wrote to his clients -- a relatively rare occurrence -- nearly a year after the initial disclosure that his $750 million hedge fund was being investigated by federal prosecutors for allegedly inflating returns.
"We are forwarding this letter in order to attempt to alleviate some of the concerns you may have," Ribotsky said in the Jan. 14 letter to investors in his Roslyn, New York-based fund. "We do not believe NIR has engaged in any wrongdoing, and NIR continues to cooperate fully in the governmental investigation."
Ribotsky, in his Jan. 14 investor letter, said the suspension of redemptions in 2008 was necessary to preserve the fund. He likened himself to a "captain" navigating a ship through a terrible storm and expressed dismay at how his name "has been maligned in the press."
Ribotsky wrote to his clients -- a relatively rare occurrence -- nearly a year after the initial disclosure that his $750 million hedge fund was being investigated by federal prosecutors for allegedly inflating returns.
"We are forwarding this letter in order to attempt to alleviate some of the concerns you may have," Ribotsky said in the Jan. 14 letter to investors in his Roslyn, New York-based fund. "We do not believe NIR has engaged in any wrongdoing, and NIR continues to cooperate fully in the governmental investigation."
Ribotsky, in his Jan. 14 investor letter, said the suspension of redemptions in 2008 was necessary to preserve the fund. He likened himself to a "captain" navigating a ship through a terrible storm and expressed dismay at how his name "has been maligned in the press."
Wednesday, January 26, 2011
Concern Over Lack of Transparency in Municipal Marketplace Grows
Investors and regulators are growing increasingly concerned about the quality and timeliness of information that state and local governments are disclosing about their finances.
The Securities and Exchange Commission is inquiring about public statements Illinois made about its pension funds amid the agency's increased scrutiny of the municipal-bond market, a representative for the governor said.
Amid governments' financial woes, meanwhile, angry investors are finding themselves blindsided by bad news. Those concerns are reflected in a forthcoming study that shows that public issuers routinely file information about their financial health well beyond the date they promise to bondholders, if at all.
This weak disclosure is raising anxiety in the $2.9 trillion market, where investors withdrew more than $20 billion from municipal bond funds in recent weeks.
Federal regulators' power in this realm is limited because municipal borrowers are unregulated. But they are trying to crack down on the disclosure issue
The Securities and Exchange Commission is inquiring about public statements Illinois made about its pension funds amid the agency's increased scrutiny of the municipal-bond market, a representative for the governor said.
Amid governments' financial woes, meanwhile, angry investors are finding themselves blindsided by bad news. Those concerns are reflected in a forthcoming study that shows that public issuers routinely file information about their financial health well beyond the date they promise to bondholders, if at all.
This weak disclosure is raising anxiety in the $2.9 trillion market, where investors withdrew more than $20 billion from municipal bond funds in recent weeks.
Federal regulators' power in this realm is limited because municipal borrowers are unregulated. But they are trying to crack down on the disclosure issue
Tuesday, January 25, 2011
SEC Urges Uniform Fiduciary Duty For Brokers and Advisers
U.S. securities regulators on Friday called for a new uniform fiduciary standard for broker-dealers and investment advisers that would require them to put retail customers ahead of their own financial interests. The recommendations, laid out by the Securities and Exchange Commission in a study reviewed by Reuters late on Friday, would drastically alter the landscape for broker-dealers who under current laws are only required to recommend products that are "suitable" to mom-and-pop investors.
It could also potentially mean changes for investment advisers if the SEC opts to replace their fiduciary standard with a new one, although the study says it would be "no less stringent" than what they face today.
Under today's standard, advisers must act in a client's best interest. The study was required under the Dodd-Frank financial law, and its findings are likely to help shape future rule-making at the agency. SEC Chairman Mary Schapiro has long called for harmonizing regulations between brokers and advisers who offer retail customers advice, saying investors may not know the difference between those acting in their best interest and those who are just peddling products.
But both Republican commissioners issued a harsh critique of the study on Friday, saying it failed to provide evidence that investors are "being systemically harmed or disadvantaged". They also questioned if a uniform standard would eliminate any investor confusion.
It could also potentially mean changes for investment advisers if the SEC opts to replace their fiduciary standard with a new one, although the study says it would be "no less stringent" than what they face today.
Under today's standard, advisers must act in a client's best interest. The study was required under the Dodd-Frank financial law, and its findings are likely to help shape future rule-making at the agency. SEC Chairman Mary Schapiro has long called for harmonizing regulations between brokers and advisers who offer retail customers advice, saying investors may not know the difference between those acting in their best interest and those who are just peddling products.
But both Republican commissioners issued a harsh critique of the study on Friday, saying it failed to provide evidence that investors are "being systemically harmed or disadvantaged". They also questioned if a uniform standard would eliminate any investor confusion.
Friday, January 21, 2011
SEC Charges 3 Investment Firms With Fraud
Three affiliated New York investment firms and four senior officers were charged with fraud, misuse of client assets and other violations involving their advisory business, according to the Securities and Exchange Commission.
The SEC alleged that investment adviser William Landberg and President Kevin Kramer, through firms West End Financial Advisors LLC, West End Capital Management LLC and Sentinel Investment Management Corp., misused investor assets, fraudulently obtained more than $8.5 million from a bank and used a reserve account for unauthorized purposes.
"West End raised millions from investors by touting false positive returns while concealing fraudulent bank loans, cash flow problems and the misappropriation of investor assets," said David Rosenfeld, associate director of the SEC's New York regional office.
Mr. Landberg allegedly used substantial amounts of fraudulently obtained bank loans to make distributions to certain West End investors, sustaining the illusion their investments were performing well.
The SEC accused Mr. Kramer of knowing, or being reckless in not knowing that West End faced severe financial problems and had difficulty obtaining funding its investment strategy, though he continued to market the funds to investors through April 2009.
West End Financial Officer Steven Gould and Controller Janis Barsuk also face charges related to the alleged misconduct, which the SEC said occurred from January 2008 to May 2009. The SEC accused the two of knowing, or being reckless for not knowing, about Mr. Landberg's alleged fraud. Mr. Gould allegedly used improper accounting methods and issued account statement with false investment returns.
Mr. Landberg also is accused officials of misappropriating at least $1.5 million for himself and his family.
The SEC alleged that investment adviser William Landberg and President Kevin Kramer, through firms West End Financial Advisors LLC, West End Capital Management LLC and Sentinel Investment Management Corp., misused investor assets, fraudulently obtained more than $8.5 million from a bank and used a reserve account for unauthorized purposes.
"West End raised millions from investors by touting false positive returns while concealing fraudulent bank loans, cash flow problems and the misappropriation of investor assets," said David Rosenfeld, associate director of the SEC's New York regional office.
Mr. Landberg allegedly used substantial amounts of fraudulently obtained bank loans to make distributions to certain West End investors, sustaining the illusion their investments were performing well.
The SEC accused Mr. Kramer of knowing, or being reckless in not knowing that West End faced severe financial problems and had difficulty obtaining funding its investment strategy, though he continued to market the funds to investors through April 2009.
West End Financial Officer Steven Gould and Controller Janis Barsuk also face charges related to the alleged misconduct, which the SEC said occurred from January 2008 to May 2009. The SEC accused the two of knowing, or being reckless for not knowing, about Mr. Landberg's alleged fraud. Mr. Gould allegedly used improper accounting methods and issued account statement with false investment returns.
Mr. Landberg also is accused officials of misappropriating at least $1.5 million for himself and his family.
Thursday, January 20, 2011
SEC Investigating Life Partners
The Securities and Exchange Commission is investigating Life Partners Holdings Inc., a Waco, Texas, company that has arranged for investors to buy several billion dollars of life-insurance policies from their original owners, according to four people who have been contacted recently by the agency.
As part of its probe, the SEC's enforcement division has been seeking experts to analyze the way Life Partners has estimated the life expectancies of the insured individuals, these people say. The estimates—projections of how long the people might have to live—are a crucial part of the investment equation.
The shorter an insured person's expected life span, the more Life Partners generally can charge for that policy, because investors expect a faster payout. If the death comes later than anticipated, not only is the policy payout delayed, but investors who buy policies or parts of them must continue to pay premium bills while they wait to collect on a death benefit.
Questions about the accuracy of Life Partners' life-expectancy estimates were the focus of a December Page One article in The Wall Street Journal. The article reported that many of the insured people are living well beyond the company's estimates, suggesting that the 10% or 15% yearly returns promoted to Life Partners' investor clients may prove elusive for many.
The company has said it remains confident in its methodology, and that even if many insured people outlive their projected life spans, investors likely will still make respectable single-digit annual returns.
Attractive projected returns for clients are a key part of Life Partners' formula for success. One of the fastest-growing small companies in the U.S. in recent years, Life Partners reported earnings of $29.4 million on $113 million of revenue for its fiscal year ended Feb. 28, 2010.
Life Partners says it has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since its 1991 founding. Life Partners extracts often-hefty fees in the deals, averaging $308,000 apiece for the 201 policies sold in its most recent fiscal year. Investors often buy pieces of multiple policies.
The company uses a Reno, Nev., physician, Donald T. Cassidy, to provide its life-expectancy estimates. Wednesday, Dr. Cassidy didn't respond to requests to his office for comment. He declined to be interviewed for the Journal's earlier story.
Rick Bergstrom, an actuary in Bellevue, Wash., who has worked in the life-settlements field since 1997, said an attorney from the SEC's Fort Worth, Texas, office called him last week, to ask whether he could help analyze Life Partners' life-expectancy projections.
Mr. Bergstrom said he and a partner five years ago examined Dr. Cassidy's work for an institutional investor that was thinking of hiring the physician. They concluded Dr. Cassidy was using an "unrealistic" approach that tended to produce inaccurately short life expectancies, Mr. Bergstrom said.
As part of its probe, the SEC's enforcement division has been seeking experts to analyze the way Life Partners has estimated the life expectancies of the insured individuals, these people say. The estimates—projections of how long the people might have to live—are a crucial part of the investment equation.
The shorter an insured person's expected life span, the more Life Partners generally can charge for that policy, because investors expect a faster payout. If the death comes later than anticipated, not only is the policy payout delayed, but investors who buy policies or parts of them must continue to pay premium bills while they wait to collect on a death benefit.
Questions about the accuracy of Life Partners' life-expectancy estimates were the focus of a December Page One article in The Wall Street Journal. The article reported that many of the insured people are living well beyond the company's estimates, suggesting that the 10% or 15% yearly returns promoted to Life Partners' investor clients may prove elusive for many.
The company has said it remains confident in its methodology, and that even if many insured people outlive their projected life spans, investors likely will still make respectable single-digit annual returns.
Attractive projected returns for clients are a key part of Life Partners' formula for success. One of the fastest-growing small companies in the U.S. in recent years, Life Partners reported earnings of $29.4 million on $113 million of revenue for its fiscal year ended Feb. 28, 2010.
Life Partners says it has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since its 1991 founding. Life Partners extracts often-hefty fees in the deals, averaging $308,000 apiece for the 201 policies sold in its most recent fiscal year. Investors often buy pieces of multiple policies.
The company uses a Reno, Nev., physician, Donald T. Cassidy, to provide its life-expectancy estimates. Wednesday, Dr. Cassidy didn't respond to requests to his office for comment. He declined to be interviewed for the Journal's earlier story.
Rick Bergstrom, an actuary in Bellevue, Wash., who has worked in the life-settlements field since 1997, said an attorney from the SEC's Fort Worth, Texas, office called him last week, to ask whether he could help analyze Life Partners' life-expectancy projections.
Mr. Bergstrom said he and a partner five years ago examined Dr. Cassidy's work for an institutional investor that was thinking of hiring the physician. They concluded Dr. Cassidy was using an "unrealistic" approach that tended to produce inaccurately short life expectancies, Mr. Bergstrom said.
Monday, January 3, 2011
Securities America Loses $1.2 million FINRA Arbitration
A FINRA arbitration panel ordered Securities America to pay an investor more than $1.2 million in damages related to losses in promissory notes issued by Medical Capital Holdings Inc., which entered receivership in 2009. The sum included $250,000 in punitive damages.
The case, decided on Dec. 31, was the first among dozens of arbitration cases against Securities America involving its sale of Medical Capital notes to proceed to an arbitration hearing, a Securities America spokeswoman confirmed. Private placements are sales of unregistered securities that are supposed to be marketed only to institutions and sophisticated individuals who meet certain income and net worth requirements.
Josephine Wayman, a California-based investor, filed the case against Securities America and one of its brokers, Randall R. Talbott of Newport Beach, Calif., in late 2009, alleging misrepresentation and fraud, among other things, according to the ruling. She sought $729,000 plus interest, legal fees, punitive damages and other relief. The panel ruled that Securities America and Talbott as jointly responsible for more than $905,000 of the total award, including $734,000 in damages plus interest, $111,465 in legal fees and $59,883 in expert witness fees, according to the award. The firm and Talbott must also pay an additional $17,000 in hearing fees, which are typically split between the parties in most cases.
Securities America, however, is solely responsible for the $250,000 in punitive damages. The panel didn't fully explain its decision, as is customary in arbitration rulings. One paragraph of the ruling, however, suggests that issues related to witnesses and the discovery phase of the proceeding, when parties exchange information, may have prompted the punitive damages.
The case, decided on Dec. 31, was the first among dozens of arbitration cases against Securities America involving its sale of Medical Capital notes to proceed to an arbitration hearing, a Securities America spokeswoman confirmed. Private placements are sales of unregistered securities that are supposed to be marketed only to institutions and sophisticated individuals who meet certain income and net worth requirements.
Josephine Wayman, a California-based investor, filed the case against Securities America and one of its brokers, Randall R. Talbott of Newport Beach, Calif., in late 2009, alleging misrepresentation and fraud, among other things, according to the ruling. She sought $729,000 plus interest, legal fees, punitive damages and other relief. The panel ruled that Securities America and Talbott as jointly responsible for more than $905,000 of the total award, including $734,000 in damages plus interest, $111,465 in legal fees and $59,883 in expert witness fees, according to the award. The firm and Talbott must also pay an additional $17,000 in hearing fees, which are typically split between the parties in most cases.
Securities America, however, is solely responsible for the $250,000 in punitive damages. The panel didn't fully explain its decision, as is customary in arbitration rulings. One paragraph of the ruling, however, suggests that issues related to witnesses and the discovery phase of the proceeding, when parties exchange information, may have prompted the punitive damages.
Sunday, January 2, 2011
SEC Charges Hedge Fund Managers with Offering Fraud
The Securities and Exchange Commission announced today that it filed a civil injunctive action against Robert Buckhannon, Terry Rawstern, Dale St. Jean and Gregory Tindall (the "Managing Members"), the four managing members of two now-defunct hedge funds, Arcanum Equity Fund, LLC and Vestium Equity Fund, LLC (the "Funds"), through which they conducted an offering fraud that raised $34 million from 101 investors throughout the U.S. and Canada. The SEC also charged Imperium Investment Advisors, LLC, a registered investment adviser which served as trustee for Vestium Equity Fund, and its three principals, Richard Mittasch, Christopher Paganes and Glenn Barikmo, for their roles in the scheme.
The SEC's complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that from April 2008 through April 2010, the Managing Members raised funds promising investors that they would generate substantial returns through conservative investments in high-grade debt instruments and, in some cases, limited physical commodities transactions. Additionally, the offering materials and prospectus for Vestium Equity Funds further assured investors that Imperium would safeguard their funds from impermissible uses. Contrary to these assurances, however, the defendants disregarded the Funds' respective investment parameters and used investor funds for illiquid private investments and loans to affiliate entities. Additionally, although the Funds incurred investment losses of at least $8.1 million, the Managing Members disseminated monthly statements falsely depicting consistent profits and paid at least $6 million to investors in alleged profits. The Managing members further paid themselves over $1.3 million in compensation that was improperly based on inflated asset values and fictitious profits. The SEC's complaint further alleges that Buckhannon, Mittasch, Paganes and Barikmo collectively misappropriated at least $734,000 of investor funds to themselves and others.
The SEC's complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that from April 2008 through April 2010, the Managing Members raised funds promising investors that they would generate substantial returns through conservative investments in high-grade debt instruments and, in some cases, limited physical commodities transactions. Additionally, the offering materials and prospectus for Vestium Equity Funds further assured investors that Imperium would safeguard their funds from impermissible uses. Contrary to these assurances, however, the defendants disregarded the Funds' respective investment parameters and used investor funds for illiquid private investments and loans to affiliate entities. Additionally, although the Funds incurred investment losses of at least $8.1 million, the Managing Members disseminated monthly statements falsely depicting consistent profits and paid at least $6 million to investors in alleged profits. The Managing members further paid themselves over $1.3 million in compensation that was improperly based on inflated asset values and fictitious profits. The SEC's complaint further alleges that Buckhannon, Mittasch, Paganes and Barikmo collectively misappropriated at least $734,000 of investor funds to themselves and others.
Saturday, January 1, 2011
Securities and Exchange Commission v. Kenneth W. Burnt, Perimeter Wealth Financial Services, Inc., and KSB Financial, Inc.
On December 20, 2010 the Securities and Exchange Commission filed a civil injunctive action in U.S. District Court for the Northern District of Georgia, charging Kenneth W. Burnt (“Burnt”), Perimeter Wealth Financial Services, Inc. (“Perimeter Wealth”) and KSB Financial, Inc. (“KSB”), with violations of federal securities laws for making false and misleading statements in connection with an unregistered covered-call equities trading program.
The Commission’s Complaint alleges that Burnt, through two entities which he controls, Perimeter Wealth and KSB, raised approximately $4.5 million from more than 20 investors. Burnt represented to investors that: (1) investment returns were guaranteed to be between 8% to 12% per annum; (2) Burnt would not be paid any funds for his advisory services unless investors were earning 8% minimum annualized returns; and (3) any principal losses or shortfalls to the guaranteed returns would be contractually covered by a reserve account funded by defendants. These representations were false in that Burnt failed to disclose to investors that he had begun directly drawing on investor funds prior to their earning the minimum guaranteed interest and that the purported reserve account was inadequately funded and incapable of covering the investor losses incurred. Since its inception through November 30, 2010, the defendants’ covered-call program has suffered net equalized losses of approximately 15%.
In its Complaint, the Commission alleges that Burnt and Perimeter Wealth violated Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”). The Complaint further alleges that KSB violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act.
On December 21, 2010 the Honorable William S. Duffey, Jr., United States District Judge for the Northern District of Georgia, entered an order preliminarily enjoining the defendants’ violative conduct, instituting a limited asset freeze, and requiring defendants to produce an accounting of all funds raised in violation of the federal securities laws as well as an accounting of the disposition and use of said proceeds. The defendants consented to the order without admitting or denying the allegations of the Commission’s complaint. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter.
The Commission’s Complaint alleges that Burnt, through two entities which he controls, Perimeter Wealth and KSB, raised approximately $4.5 million from more than 20 investors. Burnt represented to investors that: (1) investment returns were guaranteed to be between 8% to 12% per annum; (2) Burnt would not be paid any funds for his advisory services unless investors were earning 8% minimum annualized returns; and (3) any principal losses or shortfalls to the guaranteed returns would be contractually covered by a reserve account funded by defendants. These representations were false in that Burnt failed to disclose to investors that he had begun directly drawing on investor funds prior to their earning the minimum guaranteed interest and that the purported reserve account was inadequately funded and incapable of covering the investor losses incurred. Since its inception through November 30, 2010, the defendants’ covered-call program has suffered net equalized losses of approximately 15%.
In its Complaint, the Commission alleges that Burnt and Perimeter Wealth violated Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”). The Complaint further alleges that KSB violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act.
On December 21, 2010 the Honorable William S. Duffey, Jr., United States District Judge for the Northern District of Georgia, entered an order preliminarily enjoining the defendants’ violative conduct, instituting a limited asset freeze, and requiring defendants to produce an accounting of all funds raised in violation of the federal securities laws as well as an accounting of the disposition and use of said proceeds. The defendants consented to the order without admitting or denying the allegations of the Commission’s complaint. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter.
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