SEC Enforcement

Merrill Lynch Ordered to Pay $12.5M to the SEC and $3M to Six Exchanges Over Mini-Flash Crashes

Published on: September 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, a Bank of America Corp. (BAC) unit must pay a $12.5M fine to resolve Securities and Exchange Commission allegations accusing the brokerage firm of having weak controls that led to mini-flash crashes. This is the largest penalty ever imposed for alleged market access rule violations.

According to the SEC, at least 15 times from 2012 to 2014, the bank established internal trading limits that were too high and, as a result not effective. These caused disruptions in the market.

Even though there were red flags, said the regulator, Merrill Lynch purportedly did not adequately assess whether it had controls that were reasonably designed and the brokerage firm did not remedy the issues when they arose fast enough. In one example cited by the SEC, Merrill Lynch purportedly applied a 5-million shares/order limit for one stock that traded at only about 69,000 shares/day. Because of this erroneous orders compelled certain stock prices to drop and then recover abruptly within seconds. For example, nearly 3% of Google’s stock dropped in under a second.

Ex-Investment Adviser and Talk Show Host Once Again Takes Industry Ban Against Him to the Appeals Court

Published on: September 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Three years after the U.S. Securities and Exchange Commission barred Ray Lucia Sr. from the securities industry, the ex-investment adviser and radio talk show host is still seeking to overturn that decision. Last week, he filed a petition asking the U.S. Court of Appeals for the D.C. Circuit to hear his case again.

It was just last August that the appeals court heard his petition but refused to review and vacate the SEC ruling. His latest petition was submitted en banc, which could allow all 11 members of the appeals court to refuse to hear the case or decide to do so and issue a vote.

Lucia, who once touted a “buckets of money” investment strategy for retirement was barred after an SEC administrative law judge found that the ex-investment adviser misled investors about the strategy’s approach to growing retirement assets. According to the regulator, the inflation rates Lucia employed to “back-test” his strategy failed to factor in the historical inflation rates during the time periods that were supposedly relevant.

SEC Charges Ex-Microcap CEO and Boiler Room Operator in $20M Penny Stock Fraud to Bilk Senior Investors

Published on: September 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging ex-Samoyedic’s Inc. and Fun Cool Free Inc. founder Craig V. Sizer and boiler room operator Miguel Mesa with involvement in a $20M penny stock scam to bilk senior investors and others. At least 600 investors were allegedly victimized in the fraud. The two men have consented to partial settlements of the civil charges accusing them of violating broker-dealer registration and anti-fraud provision of federal securities laws. However, they are not admitting to or denying the claims.

According to the Commission, Sizer hired Mesa to draw in and bilk investors in both his companies. Mesa ran boiler rooms in California and Florida. Sizer gave Mesa pitch points for boiler room agents to use when selling stock shares. The points included alleged misrepresentations, including that investor money would go toward development and research but not toward commissions. Sizer also purportedly solicited investors by phone using the same misrepresentations and omissions to sell company shares.

Unfortunately, contends the regulator, the two men misappropriated about 90% of the money raised for their own enrichment and to pay the agents their sales commissions of 15-20%. Sizer is accused of using at least $3M on his own spending.

Hedge Fund Manager Faces SEC Charges For Insider Trading

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

The SEC has filed insider trading civil charges against Leon G. Cooperman and his Omega Advisors. According to the regulator, the hedge fund manager made illicit profits when he bought Atlas Pipeline Partners securities right before it sold its natural gas processing facility in Oklahoma.

Cooperman is accused of using his position as one of Atlas Pipeline’s biggest shareholder to obtain confidential information about the upcoming sale. This, even after Cooperman and his firm had agreed not to to make trades using the information he was given. When the sale of the facility, for $682 million, was announced publicly, Atlas Pipeline’s stock price went up by over 31%.

The SEC, in its complaint, said that when Cooperman’s firm was sent a subpoena regarding its trading involving Atlas Pipeline securities, Cooperman allegedly spoke to the executive who had given him the nonpublic information and attempted to make up a story about the trading. The executive was reportedly upset to find out that Cooperman had traded before the announcement of the sale.

SEC Cases: Blank Check Maker is Accused of Fraud, Alleged Scam Involving Company That Makes Containers to Grow Marijuana Faces Civil Charges, & Retail CEO and Promoter Accused of Fraudulent Marketing Campaigns

Published on: September 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Florida Man Implicated in Scam Involving Black Check Companies’ Stocks

The U.S. Securities and Exchange Commission has filed civil fraud charges against Sheldon R. Rose. The Florida man established over a dozen blank check companies, which the SEC contends are worthless and have no operations despite that they are registered to sell stock.

According to the regulator, Rose appointed relatives and friends as figurehead officers and shareholders but concealed that he was the one controlling the entities and their securities. Although corporate filings made it seem as if the companies were legitimate startups, the SEC contends that this was only so that reverse mergers could be conducted, the securities could be sold, and Rose and others could profit illicitly.

In addition to settling the civil charges, Rose is barred from engaging in penny stock offerings in the future or working as a director/officer of a public company. He also faces criminal charges.

Rose’s civil case is connected to the one that the SEC filed last year against 10 individuals in a penny stock scam involving blank check companies headed for reverse mergers.

SEC Awards Whistleblower $4M

Published on: September 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.

In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs.

Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips.

Securities Regulator News: NASAA Offers Guide to Protecting Senior Investors and other Vulnerable Adults, States Disclose 2015 Enforcement Statistics, and SEC to Scrutinize Firms With Rogue Brokers

Published on: September 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

NASAA Puts Out Practices and Procedures Guide to Protect Vulnerable Adults

The North American Securities Administrators Association has issued a guide to help investment advisory firms and broker-dealers create procedures and practices to help them identify and tackle suspected incidents of financial exploitation involving vulnerable adult clients, including senior investors and adults with diminished capacity. The guide provides steps that revolve around five key concepts:

Identifying who is a vulnerable individual
Governmental reporting
Third-party reporting
Delaying disbursement from the account of a client who is a vulnerable adult
Ongoing regulator cooperation when a disbursement is delayed or a report of suspected financial exploitation is made.

It was just recently that NASAA put into effect its Model Act to Protect Vulnerable Adults from Financial Exploitation and this guide is a companion to the act.

If you are an elderly investor or a vulnerable adult who has suffered losses due to fraud, call our senior financial fraud law firm today.

Securities Violations: Raymond James and Robert W. Baird to Pay Fines For Alleged Wrap Fee Compliance Failures, RBC Agrees to Pay $2.5M Over Proxy Statement Disclosures, and Ex- ARCP Accounting Executives Are Accused of Overstating REIT’s Performance

Published on: September 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James and Robert W. Baird Are Charged With Compliance Failures

The Securities and Exchange Commission said that Robert W. Baird and Co. and Raymond James & Associates (RJF) will pay $250K and $600K, respectively, to settle charges accusing them of compliance failures in their own wrap free programs. Both firms resolved the charges without admitting or denying to them. They did, however, consent to the regulator’s orders, which found that they violated the Investment Advisers Act of 1940 and Rule 206(4)-7.

According to the SEC’s investigation, Raymond James and Robert W. Baird did not put into place the necessary policies and procedures that would have allowed them to figure out how much in commissions their clients were charged when sub-advisers “traded away” with a brokerage firm that was not part of the wrap fee programs. As a result, said the regulator, the advisers could not let clients know the “magnitude of the costs” nor did the firm consider these commissions when trying to figure out whether the wrap fee program or sub-advisers were appropriate for clients. Because of this, claims the SEC, some clients did not know that they were paying for more than the single wrap fee for investments that were bundled.

Two ARCP Ex-Accounting Executives Face SEC and Criminal Charges For Allegedly Inflating the REIT’s Performance

Brian S. Block and Lisa P. McAlister are facing criminal and civil charges for allegedly overstating the performance of the American Reality Capital Properties (ARCP), now called VEREIT Inc. The two former ARCP accounting executives are accused of inflating a key metric that investors and analysts used to evaluate the publicly-traded real estate investment trust.

BOK Financial to Pay More Than $1.6M Over Allegations Related to Municipal Bond Scam

Published on: September 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission said that BOK Financial Corporation subsidiary BOKF NA will pay over $1.6M to resolve charges accusing the Oklahoma-based bank of ignoring signs that businessman Christopher F. Brogdon was engaged in suspect activates related to his management of municipal bond offerings for investors. Brogdon was charged by the regulator with fraud last year and he must pay back investors $85M.
The federal government accused him of collecting almost $190M through private placement offerings and muni bond offerings. Investors thought they would earn interest from money made by assisted living facilities, nursing homes, or another retirement community project. Instead, Brogdon commingled accounts and redirected investor funds to other ventures and his own expenses.

According to the regulator, BOKF and ex-senior VP Marrien Neilson found out that Brogdon was taking money out from reserve funds for the muni bond offerings and not replacing the money. They also became aware that he had neglected to file annual financial statements for the bond offerings.

SEC Bans Andrew Caspersen After $38M Financial Fraud

Published on: September 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Andrew Caspersen is now permanently barred from the investment industry. The Securities and Exchange Commission announced the ban.

Caspersen, who used to be the managing principal at Park Hill Group and is the son of financier and philanthropist Finn M. W. Caspersen, had pleaded guilty to criminal charges of securities fraud and wires fraud. He admitted to bilking investors of over $38M and misappropriating over $8M. Park Hill fired him earlier this year.

The ex-Wall Street executive admitted to having a “gambling addiction” and his involvement in a scam to raise $95M. His fraud victims included family and friends. According to his attorney, Caspersen lost $123M by speculating on put options in the S & P index. His sentencing hearing is in November.