SEC Enforcement

SEC Files Microcap Fraud Cases Alleging Fake IPO-Related Penny Stock Sales

Published on: December 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is barring a number of market participants from the penny stock industry for their involvement in a number of purportedly fake initial public offerings of microcap stocks. The regulator says that investors were bilked because of these schemes.

Among those barred is Newport Beach, CA securities attorney Michael J. Muellerleile. He is accused of authorizing misleading and bogus registration statements that were employed in fake IPOs for several microcap issuers. The statements were generated to purportedly move unrestricted penny stock shares to offshore market participants. Muellerleile’s firm, M2 Law Professional Corp, attorney Lan Phuong Nguyen, and American Energy Development Corp. CFO Joel Felix are also charged in this microcap fraud case.

Nguyen allegedly signed misleading and false legal opinion letters. Felix is accused of making misleading and false statements. Earlier this month, the regulator suspended trading in American Energy Development.

Whistleblower Cases: SEC Issues Almost $1MK Award to Another Tipster, JPMorgan is Defendant in IRS Whistleblower Case Involving Pension Funds, and Prudential Stops Selling Certain Term Life Insurance Policies Through Wells Fargo Following Employees’ Lawsuit

Published on: December 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission said that it has awarded a whistleblower over $900K for a tip that allowed the regulator to bring multiple enforcement actions. The regulator announced the award just a days after it awarded another whistleblower $3.5M, also for coming forward with information resulting in an enforcement action.

Since 2012, the regulator’s whistleblower program has awarded about $136M to 37 individuals. The SEC protects the identities of whistleblowers, which is one reason it doesn’t disclose details about the enforcement cases.

It is against the law for companies to retaliate against employers for turning whistleblower, and there are protections, as well as remedies in place in the event of retaliation. Whistleblowers who provide the SEC with unique and helpful information that makes it possible for a successful enforcement action rendering over $1M in monetary sanctions are entitled to 10-30% of the funds collected.

Morgan Stanley Settles Margin Account-Related Violations with FINRA & The SEC for $10.3M

Published on: December 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two US regulators have fined Morgan Stanley (MS) for margin account violations that purportedly resulted in the firm using customer funds and securities for its benefit. The US Securities and Exchange Commission fined the firm $7.5M, while the Financial Industry Regulatory Authority imposed a $2.75M fine.

According to the SEC, Morgan Stanley used trades that involved customer money to decrease its borrowing costs. The Commission said that this violates the agency’s Customer Protection rule, which is meant to keep customer money and securities safe so that they can be given back to customers in the event that a brokerage firm were to fail.

The SEC said that from 5/2013 to 5/2015, the firm’s broker-dealer in the US used transactions with an affiliate to decrease the amount it had to deposit in its customer reserve account. Under the Customer Protection Rule, brokerage firms are not allowed to use affiliates to lower their customer reserve account deposit requirements.

SEC Files Charges Against Operators of Bogus Day Trading Firm that Bilked Inexperienced Investors Globally of Over $1.4M

Published on: December 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed securities fraud charges against Naris Chamroonrat of Thailand and American Adam L Plumer. The regulator contends that the two men ran a fake day-trading that collectively defrauded hundreds of investors in over 30 nations of over $1.4M. At least 180 of the investors are from the US, including several from New Jersey.

Chamroonrat purportedly recruited Plumer to bring in investors to engage in day trading via Nonko Trading, an unregistered broker-dealer. The firm promised low trading commissions, good leverage, and low deposit requirement minimums.

However, contends the regulator, rather than employing a live securities trading platform, the firm gave certain investors training accounts that simulated the execution and placement of their orders that were never actually sent to the markets. Instead, their money went toward Chamroonrat’s own expenses, payments to Plumer and others, and was used as Ponzi-like payments to investors who decided close their accounts. The Commission believes that the day trading scam purposely targeted novice investors who were more apt to make trades that were not profitable, less likely to attempt to take money out of their account, and more prone to assuming that their investment losses were from trading and not because of fraud.

Securities Fraud: Former California Financial Adviser Who Worked For Texas Brokerage Firm is Barred After Bilking Professional Athletes of $2M, FINRA Fines Allstate Financial Services $1M for Inadequate Supervision, and Former Registered Investment Adviser Settles Cherry Picking Scam for $328K

Published on: December 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Financial Adviser Who Worked for Texas-Based Firm is Barred by SEC After Defrauding Pro Athletes
Ash Narayan, an ex-California financial adviser, has been barred by the US Securities and Exchange Commission. Narayan, who is accused of secretly receiving almost $2M from companies that he invested in on behalf of his professional athlete clients, agreed to no longer associate with advisory or brokerage firms to resolve the regulator’s allegations.

Narayan worked for Dallas firm RGT Wealth Advisors, but he was based in California as the managing director of its Irvine office. He also is accused of misrepresenting himself as a CPA and placing clients in unsuitable private investments. In October, the Certified Financial Planner Board of Standards issued a temporary suspension against him while an investigation was conducted into the allegations. RGT Wealth Advisers fired Narayan early this year.

According to the SEC, Narayan’s alleged fraud occurred between 2010 and 2016, during which time he directed $33M to a company that he was involved in and was in poor financial health. By settling, Narayan is not denying or admitting to the SEC charges.

Deutsche Bank Ends Dark Pool Probe with $37M Settlement to the NY AG and the SEC, as well as a $3.25M Fine to FINRA

Published on: December 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has agreed to pay $37M to conclude the US government probes into its handling of trades in dark pool trading venues. The German bank also admitted that between 1/2012 and 2/2014 traders were misled about the way the it ranked its SuperX dark pool and other trading venues. The government settlements were reached with the US Securities and Exchange Commission and the New York Attorney General. Meantime, the Financial Industry Regulatory Authority fined Deutsche Bank $3.25M, noting “deficient disclosures” involving dark pool trading.

According to the NY AG and the SEC, Deutsche Bank told investors that it ranked its dark pools according to a number of factors, including transaction costs. However, some its technology purportedly wasn’t functioning correctly which means that the order-routing choices were not organized according to the factors noted. The German bank also is accused of disregarding its own method for ranking dark pools and placing its own dark pool in a preferred tier.

The government believes that between 1/2012 and 2/2013, Deutsche Bank employed outdated dark-pool rankings to decide how to route orders rather than updating its ranking model on a regular basis.The bank discovered the technical glitch in 2013, but did not fully correct the issue and waited until the following year to notify clients.

SEC Charges Onix Capital and Its Owner With $5.7M Promissory Note Fraud

Published on: November 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed promissory note fraud charges against Onix Capital and it owner Albert Chang-Rajii. The Miami-based asset management company and Chang are accused of bilking investors who put their money into promissory notes and start-ups, as well as of falsely portraying the Chilean national as an award-winning multi-millionaire “angel” investor who had graduated from Stanford University’a business school.

According to the regulator’s complaint, Chang and Onix Capital sold over $5.7M in promissory notes that they falsely claimed he had guaranteed and told investors that the notes themselves “guaranteed” yearly returns of 12-19%. They also raised over $1.7M that Chang was supposed to invest in companies like Square, Snapchat and Uber.

The SEC said that, in truth, Onix Capital’s investment revenue was “non-existent” and Chang did not have the professional or educational background that he touted. The Commission alleges that rather than use the funds as promised, the money went to Chang and to pay other investors.

PIMCO Agrees to Pay Almost $20M to Settle SEC Charges That It Misled Exchange-Traded Fund Investors

Published on: November 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Pacific Investment Management Company (PIMCO) has agreed to settle the U.S. Securities and Exchange Commission’s charges accusing the firm of misleading investors about the performance of one of its exchange-traded funds and not placing an accurate value on certain fund securities. As part of the settlement, PIMCO will pay almost $20M and hire an independent compliance consultant.

The regulator contends that investors were drawn to the Pimco Total Return Active ETF after, within months of its launch in 2012, it did well enough to outperform the investment management firm’s flagship mutual fund. The fund was previously managed by Bill Gross, PIMCO’s co-founder, and it was intended to mirror PIMCO’s flagship Total Return Fund.

Although Pimco Total Return Active ETF’s initial success is linked to the smaller-sized bonds that were purchased to help boost early performance, in its yearly and monthly reports PIMCO purportedly gave investors other reasons for these early results that were “misleading.” Meantime, the SEC said, PIMCO did not disclose that the initial performance success was a result of an “odd lot strategy”—referring to the purchase of the smaller bonds, which were non-agency mortgage-backed securities—and that this approach that would not be sustainable as the fund continued to grow.

Securities News: Goldman Sachs to Settle Reno’s Auction Rate Securities for $750K, SEC Demands Remaining $5.4MFine Owed By Maine Developer, & a Federal Judge Rules in Jay Peak Resort EB-5 Case

Published on: November 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs and Reno, NV Settle Securities Fraud Case
According to the Reno Gazette-Journal, the city of Reno is about to settle its securities fraud lawsuit against Goldman Sachs (GS) for $750K. Nevada’s capital city claims that the firm misled it into taking on risky debt that nearly caused Reno to become insolvent. The Reno City Council will vote on approving the settlement next week. Other details of the settlement remain undisclosed at this time.

The auction-rate securities lawsuit involved over $210M in bonds issued by Reno in ’05 and ’06 to refinance the debt for an events center and another facility. The city claims that Goldman Sachs never disclosed that the ARS market was very risky or that the firm was bidding interest rates down to hold up the market.

When the financial collapse happened in 2008 and banks ceased to bid on auction rates, rates went soaring. This left Reno with a 15% debt interest rate and millions of dollars in penalties that it now owed Goldman. For example, in 2012 Reno paid the firm $2.6M. It paid the Goldman Sachs $7M the following year.

Securities Cases: Minnesota Adviser Goes to Prison Over Ponzi Scam, Ex-Morgan Stanley Broker Accused of soliciting $2.7 M from Elderly Investors After He is Barred from the Securities Industry, and 808 Renewable Energy Faces Fraud Charges

Published on: November 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Minnesota-Based Investment Adviser Gets Six-Year Jail Term
According to the Minnesota Department of Commerce, Levi David Lindemann was ordered to serve a 74-month prison sentence—that’s six years—for bilking clients in a Ponzi scam. Lindemann owned Gershwin Financial, which did business using the name Alternative Wealth Solutions. He pleaded guilty to money laundering and federal mail fraud charges.

Minnesota Commerce Commissioner Mike Rothman said that Lindemann abused his position as a financial adviser when he defrauded clients, including older investors. He did this by promising to invest their funds in safe investments but instead used their money to make Ponzi-type payments to clients and pay for his own expenses.

Lindemann’s guilty plea states that he solicited money from about 50 investors. He attempted to hide the securities fraud by generating fake secured notes as supposed evidence of the clients’ investments. The SEC permanently barred him from the securities industry earlier this year.

SEC Accuses Barred Broker of Selling Securities to Older Investors
According to the SEC, ex-Morgan Stanley (MS) broker Rafael Calleja solicited $2.7M from 10 retiree and elderly investors after he had already been barred from the securities industry. The regulator claims that Calleja told investors their principal was insured and they would get a fixed return rate in a year. Meantime, he allegedly used at least $12K of their funds to pay for cruises, golf outings, and other personal expenses. He also purportedly failed to tell investors that his broker license had been revoked.