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.
Thursday, March 31, 2011
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.
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