SEC Enforcement

Logos Wealth Financial Advisers is Accused of Fraudulently Raising Over $14M from Investors

Published on: August 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Paul Mata, the founder of Logos Wealth Advisors, has been barred by the U.S. Securities and Exchange Commission. Mata and fund manage David Kayatta, whom the SEC has also barred, are accused of fraudulently raising over $14M in investor funds.

Mata drew in investors through investment seminars and online videos that came with the promise of “Indestructible Wealth.” During presentations to church groups, he touted “Finances God’s Way.”

Kayatta was the manager of two unregistered investment funds while at Logos Wealth Advisors. According to the Commission, beginning in 2008, the two men raised this money from over 100 investors in the unregistered funds. Kayatta and Mata promised guaranteed returns, did not make any disciplinary history known, and misused investor money.

In the order against him, the SEC said that Kayatta was responsible for the misleading and false statements in private placement memoranda for the Funds. According to InvestmentNews, in 2010, Kayatta was ordered by the state of Nevada to cease-and-desist from pursuing investors in unregistered securities and taking part in investment advisory conduct without the proper licensing.

Securities Fraud Headlines: Caldwell International to Pay $2M Over Churning Allegations, Alabama Lawyer Allegedly Bilked Professional Athletes, and a Green Tech Company Faces Investor Fraud Charges

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

Caldwell International Securities Gets $2M Fine to Settle Churning Allegations
The Financial Industry Regulatory Authority has imposed a $2M fine on Caldwell International Securities Corp. It is fining Greg Caldwell, who is the principal of the financial firm, $50K. He is now barred from serving as a principal in the securities industry.

FINRA contends that supervisory failures is what allowed Caldwell International Securities’ brokers to allegedly engage in churning. This involves a trader taking part in excessive trading to make the most in commissions possible. The self-regulatory organization said that the firm’s failures caused fifteen clients to pay over $1M in commissions and fees on investment recommendations that were not appropriate for them.

FINRA believes the firm grew too fast and that this was one of the reasons its inadequate supervisory system was purportedly inadequate. The SRO said that it was this lack of proper supervision that made it possible for advisors to make unsuitable investment recommendations.

The regulator said that even after customers complained, Caldwell and other senior employees did not remedy this matter. In 2015, ex-Caldwell registered representative Richard Adams was barred by FINRA. The regulator claimed that Adams made $57K in commissions while clients sustained $3K in losses because of overtrading that took place in two customer accounts.

Alabama Attorney is Accused of Defrauding Professional Athletes, Other Investors Of Over $6M
The U.S. Securities and Exchange Commission is charging Donald Watkins and his companies with fraud. According to the regulator, the Alabama lawyer and his Masada Resource Group LLC and Watkins Pencour LLC bilked investors, including professional athletes, out of more than $6M in supposed waste-to-energy ventures.

The SEC complaint said that the defendants made the false claim that an international waste treatment company was considering acquiring Watkins’ two companies and their affiliated companies in a multi-billion dollar deal. In reality, said the regulator, Waste Management Inc. only had a brief first meeting with the defendants in 2012. This was over a year after the defendants started telling investors that talks were moving forward and an acquisition was going to happen.

California Lawyer Goes to Prison for Securities Fraud

Published on: August 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Richard Weed, a financial services lawyer, has been sentenced to four years in prison over his involvement in a stock scam involving a number of publicly trading companies. His sentence was issued in the U.S. District Court in Boston.

Weed was convicted of securities fraud and wire fraud in May. He and two others are accused of conspiring to make it appear as if CitySide, a ticket reseller based in Boston, was growing as a company when, in fact, it was in financial trouble. Weed was the ticket reseller’s secretary and on its board.

He drafted false and misleading legal opinion letters in order for his co-conspirators to get free trading stock. He also had the stock distributed to various entities under their control to hide their ownership of CitySide. Because of this, said the U.S. Attorney’s Office, District of Massachusetts, the co-conspirators were able to manipulate the reseller’s stock and sell shares at prices that were artificially inflated.

13 Investment Advisers Pay Penalties Over F-Squared Investment’s False Performance Claims

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

The U.S. Securities and Exchange Commission has imposed penalties against more than a dozen investment advisory firms because they purportedly spread false claims made by F-Squared Investments about its Alpha Sector strategy. The SEC said that the firms violated securities laws.

According to the regulator, which conducted an enforcement sweep, 13 firms accepted y F-Squared’s false claim that its exchange-traded funds’ investing strategy had outperformed the S & P index for a number of years. The firms touted these claims when recommending the investment to their clients. The SEC said that they did this without first obtaining adequate documentation to confirm that what F-Squared had told them was true.

It was in 2014 that F-Squared admitted to wrongdoing and consented to pay $35M to settle allegations accusing it of using false performance information about its key product to bilk investors. The SEC said that F-Squared falsely advertised its supposed successful multi-year performance record. Unfortunately, that supposed time period for this performance record would have taken place before key algorithm that had been touted for this success even existed.

In reality, backtesting had been used to come up with a “hypothetical performance” from the noted period of supposed success. Yet, F-Squared and ex-CEO Howard Present marketed AlphaSector as “not backtested.” Also, the hypothetical information included a performance calculation mistake that increased results by about 350%.

Penalties for the 13 firms vary in amount from $100K to $500K. These were determined according to the fees they respectively made from strategies related to AlphaSector.

Apollo Global Management Settles Supervisory and Disclosure Failure Charges for $52.7M

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

Apollo Global Management (APO) has agreed to settle for $52.7M allegations that the firm misled fund investors regarding fees and a loan agreement, as well as failed to supervise a senior partner. The settlement was reached with the U.S. Securities and Exchange Commission, which found during its probe that Apollo advisers did not adequately disclose benefits they obtained. This ended up harming fund investors.

Four private equity fund advisors will be paying part of the settlement include:

· Apollo Management V, LP

Securities Fraud News: Hedge Fund Manager Accused of Securities Fraud Involving Payoffs to the Terminally Ill, SEC Halts Trading in Neruomama Shares, and Commodity Pool Fraud Leads to More than $10M in Penalties and Restitution

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

Investment Advisor Firm Accused of Paying Off Terminally Ill Patients to Commit Fraud
The SEC has filed fraud charges against Donald Lathen and his Eden Arc Capital Management. Lathen is accused of recruiting at least 60 individuals who had less than six months to live and agreeing to pay them $10K each for the use of their names on joint brokerage accounts. When one of these individuals would die, he would allegedly redeem the investments by falsely representing that he and the terminally individual person were joint account holders.

Lathen recruited the terminally ill patients through contacts he had at hospices and nursing homes. In reality, it was Lathen’s hedge fund that owned the option investments.

As a result, of the purported omissions and misrepresentations, issuers paid over $100M in early redemptions. Lathen is accused of violating the custody rule by not properly putting the securities and money from the hedge fund in an account under the name of the fund or in one that held only client money and securities.

SEC Stops Trading in Neromamam Ltd.
The SEC has stopped the trading of Neuromama Ltd. (NERO) shares. The shares trade on the mostly unregulated over-the-counter markets and the regulator is concerned about transactions that may be “potentially manipulative, as well as other red flags that have purportedly been cropping up for years.

Neruomama’s paper value went up times four to $35B this year despite not much volume. The company’s shares went up by four times to $56/share. (On January 15, ’14, its value was $4.73B.)

Ex-Perella Weinberg Partners Managing Director is Convicted of Insider Trading, Giving Tips to His Dad

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

A jury has Sean Stewart, the ex-managing director of Perella Weinberg Partners LP of insider trading. Stewart is accused of giving his dad confidential tips about five health-care deals.

According to prosecutors, Stewart started giving his dad insider information in 2011 while he was VP of J.P. Morgan Chase & Co.’s (JPM) healthcare investment banking group. He continued to tip his dad when he went to work for Perella. As a result of the insider information, Stewart’s dad, Robert Stewart, and Richard Cunniffe made over $1M in illegal profits. The elder Stewart has already pleaded guilty to the charges against him.

During the trial, the younger Stewart testified that his dad had betrayed him by using the information that he had shared with him during casual conversation. He testified that he lied to compliance lawyers at JPMorgan in 2011 to protect his reputation and his father. He claimed that he never thought that his dad would use the information to make trades.

Robert has already been sentenced to four years of probation for his role after pleading guilty to securities fraud. Also, he had to forfeit $150K in ill-gotten gains. The elder Stewart shared the tips he received from his son with two others, including Cunniffee, who testified that they used the tips to buy stock options. Cunniffee had earlier pleaded guilty to insider trading.

Ex-Goldman Sachs Trader to Pay $400K Fine to Settle RMBS Fraud Case

Published on: August 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Edwin Chin, an ex-Goldman Sachs Group Inc. (GS) senior trader, will pay $400K to resolve U.S. Securities and Exchange Commission charges accusing him of misleading the bank’s customers when he sold them residential mortgage-backed securities at prices that were higher than they should have been. Even though he is settling, Chin is not denying or admitting to the regulator’s findings. He has, however, agreed to the entry of the order stating that he violated the Securities and Exchange Act of 1934 and Rule 10b-5.

According to the Commission’s order, from 2010 until 2012, which is when Chin left the bank, the former Goldman trader made extra money for the firm by concealing the prices that it had paid for different RMBSs and reselling the securities at higher prices to customers. The difference in cost would go to Goldman.

The SEC said Chin made over $1.5M in additional trading profits. Because Goldman made more money, Chin did as well.

The regulator accused Chin of sometimes misleading buyers by suggesting that he was in the process of negotiating a transaction between customers when he was merely selling residential mortgage-backed securities from Goldman’s inventory. In one alleged incident, Chin earned an additional $200K by telling a hedge fund client that he would sell a bond at cost price and without compensation. Unfortunately, he purportedly neglected to tell the hedge fund that he had already bought the security, had it in inventory, and was charging the fund a worse price than what Goldman paid earlier that day. The SEC said that Chin misled the same client about the price of a different security the following day, resulting in an additional $100K in profit.

San Francisco Investment Manager is Sued Over $2M Hedge Fund Fraud

Published on: August 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed a financial fraud lawsuit against Nicholas M. Mitsakos and his Matrix Capital Market. Mitsakos and his investment advisory firm are accused of pretending that they managed millions of dollars in assets. They allegedly stole about $800K from the first client that invested with them. The client, a Cayman Islands fund, invested $1.99M.

Mitsakos and his firm are accused of soliciting investors in a purported hedge fund. They are said to have falsely claimed they were successful money managers overseeing millions of dollars even though they had no assets. Instead, they allegedly made up a hypothetical investment portfolio in which the investments made up to 66% of yearly returns. The two of them are accused of pretending that these trades were real.

Commenting on the hedge fund fraud, SEC New York Regional Office Director Andrew Calamari said that it is important for investors to verify any information about an investment opportunity, especially one that is touted as having a “lofty historical performance.”

SEC Charges Ex-Philadelphia Eagles Football Player With $10M Fraud

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

Merrill Robertson Jr., an ex-Philadelphia Eagles football player, is charged with financial fraud. According to the Securities and Exchange Commission, Robertson bilked investors in a $10M scam.

The SEC claims that Robertson, Sherman Vaughn Jr. and their Cavalier Union Investments LLC promised investors they would invest in diversified holdings. Instead, they took nearly $6M of investors’ money to cover their own spending and pay earlier investors. Expenditures purportedly included cars, luxury items, spa visits, family vacations, and educational expenses.

The two men are accused of claiming that the unregistered debt securities they were selling were safe and would generate up to 20%. They also purportedly told people that experienced invest advisers were running Cavalier’s investment funds when there were no advisers or funds.

The investment firm, said the SEC was “functionally insolvent” soon after it was set up, yet the defendants allegedly concealed this from prospective investors and depended on the latter’s money to stay in business. The government said that Cavalier only invested in restaurants and all of them failed.