SEC Enforcement

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis

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

According to InvestmentNews, New York City Council Speaker Melissa Mark-Viverito is asking the U.S. Securities and Exchange Commission (“SEC”) to conduct a probe into OppenheimerFunds, Inc. (“OPY”) and its impact on Puerto Rico’s financial woes. Speaker Mark-Viverito believes that the asset-management company played a part in making Puerto Rico’s financial crisis worse by investing even more in the island’s debt. She claims that just in the last eight months, OppenheimerFunds has added $500 million to investments it made in Puerto Rican debt.

Right now, the U.S. territory owes over $70 billion in debt, which it is struggling to pay. It recently defaulted on over $370 million of a bond payment that was due this month. Another $2 billion is due in July, including around $700 million in general obligation debt.

To satisfy investor redemptions, OppenheimerFunds has sold its non-Puerto Rico bonds, which would have raised the current allocation of the asset manager’s funds to the Commonwealth. In a letter to the SEC, Mark-Viverito, who was born in Puerto Rico, urged the agency to look into whether Oppenheimer has complied with all regulations and securities laws when handling its Puerto Rican bond investments. She believes banks, hedge funds, and other investors in the territory’s general-obligation bonds and utility debt are to blame for the island’s financial woes.

Nine Brokers Charged in $131M Stock Scam

Published on: May 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Nine financial professionals are charged with scamming investors in a $131M financial fraud involving Forcefield Energy Inc. According to authorities, from 12/09 to 4/15 the defendants, which include brokers, stock promoters, and investor relations officials, manipulated the LED lighting provider’s stock by trading it in secret, using undisclosed accounts, hiding kickbacks that were paid to brokers and stock promoters to tout the stock, and inflating the volume of trades to make it seem as if there was a real demand for the stock. Also this week the U.S. Securities and Exchange Commission filed civil fraud charges against the nine defendants and former ForceField executive chairman Richard St. Julien who was arrested last year on charges accusing him of running scams to inflate his company’s stock price.

Speaking about the criminal case, U.S. Attorney Robert Capers said that the defendants took a business that didn’t have much revenue and “essentially no business” and fooled their clients and the market into thinking that it was worth hundreds of millions of dollars. The nine defendant are charged with securities fraud, and conspiracies to commit wire fraud, securities fraud, and money laundering. They are former Stratton Oakmont Inc. broker Christopher Castaldo, unregistered broker Louis F. Petrossi, Mitchell & Sullivan Capital LLC managing partner of investor relations Jared Mitchell, registered representatives Richard L. Brown, Naveed A. Khan, Gerald J. Cocuzzo, Maroof Miyana, and Pranav V. Patel, and Kenai Capital Management LLC head Herschel Knippa III.

SEC Files Financial Fraud Cases Against Logitech and Ener1

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

The Securities and Exchange Commission has filed financial fraud cases against Logitech International and Ener1. Logitech, a technology manufacturer, will pay $7.5M to resolve the charges. Its former controller, Michael Doktorczyk and ex-accounting director, Sherallyn Bolles, will pay $50K and $25K penalties, respectively.

The SEC said that the two companies and their former executives committed accounting-related violations that caused investors to not have an accurate portrayal of what was going on financially at Logitech and Ener1.

According to the regulator, Logitech fraudulently inflated its financial results for the 2011fiscal year to satisfy earnings guidance, as well as committed other accounting violations over five years. The SEC also filed charges against the technology company’s former CFO, Erik Bardman, and ex-controller Jennifer Wolf, accusing them of purposely minimizing the write-down of millions of dollars of extra component parts for a product that had inventory in excess.

For the company’s financial statements, Bardman and Wolf are accused of falsely assuming that the company would construct the components into complete products even though they knew of contrary events and facts. Also, ex-CEO Gerald Quindlen, who is not accused of misconduct, gave back $194,487 in stock sale profits and incentive-based compensation that was given to him during a time when alleged accounting violations were taking place.

In the Ener1 financial fraud case, the battery manufacturer consented to pay penalties for its materially overstated assets and revenues for year-end 2010, as well as overstated assets from 2011’s first quarter. The SEC said that the financial misstatements were a result of management’s failure to impair certain receivables and investments. Ex-CFO Jeffrey A. Seidel, ex-CEO Charles Gassenheimer, and ex-chief accounting officer Robert Kamische consented to pay $50K, $100K, and $30K, respectively.

The SEC said that Robert Hesselgesser, who was the engagement partner of Price Waterhouse Coopers LLP’s audit of Ener1’s financial statements of 2010, violated auditing standards when he did not conduct the proper procedures to back his audit findings that Ener1’s management had properly accounted for revenues and assets.

Four Face SEC Charges in Florida Elder Abuse Scam Involving Free Dinners

Published on: April 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is charging four men with fraud. The regulator claims that Joseph Andrew Paul, James S. Quay, John D. Ellis, Jr., and Donald H. Ellison sought to bilk investors, including seniors, by promising them lucrative returns for their money.

The SEC contends that Ellis and Paul lied about their investment advisory firm’s performance record, generated fraudulent marketing collateral that included performance figures from the website of another firm, and recruited Quay and Ellison to be part of the scheme. The latter two then purportedly used the fraudulent materials to deceive investors who answered a mass mailing that offered a free dinner at a restaurant in Florida. Quay, who previously was found liable for securities fraud and convicted of tax fraud, allegedly used the name “Stephen Jameson” as an alias to hide his real identity. The SEC said that Jameson was not a registered investment professional when the allegedly fraudulent behavior took place, nor was Ellison for most of that time.

“Free Lunch” Seminars
The Commission has warned more than once that when it comes to investment seminars there is no such thing as a “free lunch.” While you, as the attendee, may not have to pay for the food, these seminars are educational programs and investment workshops geared toward getting you to buy an investment product that a host or an affiliate is touting.

While there are plenty of legitimate investment seminars, there are those that have purposely been set up to bilk prospective attendees. At such gatherings there may be fake products sold, misrepresentations about risks and returns made, conflicts of interest related to the products for sale and the information provided, and advertising collateral that is misleading or inaccurate. Unfortunately, older investors continue to be a favorite target of financial scammers.

At Shepherd Smith Edwards and Kantas, LTD LLP, our elder financial fraud lawyers are here to work with investors to get their money back.

Brothers Accused of $2.7M Ponzi Scam Involving Elderly Investors

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

The Securities and Exchange Commission has filed charges against brothers Daniel Rivera and Matthew Rivera with fraud. The two men are accused of running a $2.7 million Ponzi scam that targeted unsophisticated older investors.

According to the SEC, from ’08 to ’14, Daniel told investors that they could make money from Robbins Lane, which was a real estate venture in Pennsylvania. On occasion, he even purportedly recommended to some of them that they sell their retirement assets to invest in the venture.

In truth, said the Commission, Robbins Lane, which the Rivera brothers founded, lacked an investment portfolio and the ability to provide the senior investors any income. Yet Daniel set up a Robbins Lane website and produced a brochure touting the opportunity as one that gave older investors “guaranteed” income every month.

However, rather than invest the fund Daniel used the money to cover his own expense and his daughter’s college tuition. He diverted some of the money toward a janitorial business that he ran with Matthew. Hundreds of thousands of dollars in investor money went to pay other investors.

Unregistered Investment Adviser Accused of $53M Ponzi Scam Involving Pre-IPO Companies

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

New Jersey adviser John Bivona is facing U.S. Securities and Exchange Commission charges accusing him of raising over $53M from investors in a Ponzi-like scam that involved the selling of investments in pre-IPO tech companies. However, contends the SEC, instead of investing the funds as intended, he used investor money to pay taxes, legal fees, a car loan, a vacation house mortgages, and cover his nephew’s credit card bills.

The regulator, in its complaint, said Bivona funneled millions of dollars into earlier funds that he and his company managed, while at least $5.7M went to family members, including nephew Frank Mazzola, who also is dealing with SEC charges for a previous investment scam.

The Commission alleges that Bivona raised the money through Saddle River Advisors, which has not registered with the regulator since 2013, and SRA Management. Because he purportedly took the money for his own spending, to pay family bills, and keep different funds running, his firms often never had enough money to buy the shares investors had been promised.

The SEC believes that Bivona was able to keep his Ponzi scam going because he kept transferring funds between over a dozen bank accounts associated with a number of entities. Meantime, investors never received financial statements they were promised.

In its press release announcing the charges, the SEC linked to one of its bulletins that identifies the possible warnings signs that the unregistered offering you are thinking of investing in may be a scam. The Commission noted that unregistered securities are

Elder Investors: Morgan Stanley Must Pay Home Shopping Network’s Estate Over $34M, Broker Accused of Making Over $1.7M From Churning at Craig Scott Capital, and $10M Ponzi Scam Involving Jamaican Businesses Targets Older Investors

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

FINRA Panel Awards Estate Over $34M from Morgan Stanley in the Wake of Churning Allegations
A Financial Industry Regulatory Authority arbitration panel awarded the estate of Home Shopping Network Roy M. Speer over $34M in its case against Morgan Stanley (MS). The panel ruled that the firm, branch manager Terry McCoy, and broker Ami Forte were jointly liable for breach of fiduciary duty, negligence, unauthorized trading, constructive fraud, unjust enrichment, and negligent supervision. The alleged negligence would have occurred from 1/09 to 6/12 and involved investments in the financial services and banking sectors.

According to Mrs. Speer’s lawyer, in six of Mr. Speer’s accounts, about 12,000 transactions took place, most of them involving municipal bond trading and corporate trading. Many of these trades were unauthorized.

The arbitrators awarded $32.8M in compensatory damages to Speer’s widow, Lynnda Speer, and $1.5M for the costs involved in the arbitration process. The panel said that Morgan Stanley violated a law in Florida that prohibits the exploitation of vulnerable adults. Mr. Speer had dementia. Forte, who was his broker, is said to have been in a relationship with him.

Former Craig Scott Capital Broker Accused of Elder Financial Fraud
FINRA is accusing broker Edward Beyn of making over $1.7M in commissions and fees by engaging in excessive trading in client accounts while he was a registered representative at Craig Scott Capital. He is now with Rothschild Liberman. Beyn is accused of churning nine accounts of six customers, all of them over the age of 60, from 3/12 through 5/15. They all sustained losses.

SEC Cases: Ex-AIG Broker-Dealers to Pay $9.5M For Purportedly Directing Investors Toward Pricier Mutual Funds, California Water District Resolves Bond Offering Charges for $125M, & Businessman is Accused of Stealing Investor Money

Published on: March 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Former AIG Affiliate Brokerage Firms to Pay $7.5M Fine, $2M Restitution Over High-Priced Mutual Funds
Royal Alliance Associates, FSC Securities Corp., and SagePoint Financial have agreed to pay over $9.5M to resolve Securities and Exchange Commission charges accusing them of guiding clients toward expensive mutual fund share classes so that the firms could garner additional fees. The brokerage firms were formerly under the AIG Advisor Group umbrella.

According to the regulator, the firms put clients in share classes that charged 12b-1 fees for distribution and marketing even though they were eligible to purchase shares that didn’t come with these added fees.

Because of the placement in the costlier fund classes, the firms collected an additional $2M in fees and did not disclose their conflict of interest in choosing the share classes that would make them more money.

The AIG affiliates are accused of not monitoring advisory accounts quarterly to make sure that churning didn’t take place. The SEC order is claiming breach of fiduciary duty and numerous compliance failures.

California Businessman Allegedly Stole Investor Money, Covered Up Fraud
Daniel R. Nase is accused of stealing investor assets and then trying to conceal the theft once the SEC discovered his scam. The regulator claims that the California businessman raised funds from investors via an unregistered offing of common stock in his Bic Real Estate Development Corp. He then used the funds to cover his own bills.

The Commission said that Nase, who was not registered with any state regulator or the SEC to sell investments, told investors that his company would invest in promissory notes and real estate. Instead, he improperly placed those under his name, his wife’s name, of the name of their family trust. He allegedly tried to hide his fraud by investing the assets that he stole back into BIC to make it look like he was raising his equity stake in the company.

California Water District Accused of Misleading Investors in $77M Bond Offering
The SEC is charging Westlands Water District with misleading investors about its financial state while issuing a $77M bond offering. The agricultural water district is the largest one in the state of California.

According to the SEC, Westland, in prior bond offerings, consented to keep a 1.25 debt service coverage ratio but discovered in 2010 that a lower water supply and drought conditions would keep it from making enough money to keep up that ratio, which measures an issuer’s ability to make future bond payments. To meet the ratio without upping customer rates, Westlands reclassified the funds.
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Florida Man Accused of Insider Trading to Return Illegal Profits

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

The U.S. Securities and Exchange Commission announced this week that Jay Y. Fung, a Florida man accused of insider trading, has agreed to repay over $700K in illegal profits plus over $60K in interest that he made after he bought stock and call options in Pharmasset Inc. prior to its acquisition by Gilead Sciences. Fung made the trades after a friend tipped him about the pending deal.

In addition to buying shares of Pharmasset, he passed the insider tip onto his business partner who bought options, too. That individual has not been charged nor has he been accused of knowing that the information that Fung gave him was non-public and privileged.

Fung has since pled guilty in a parallel criminal case accusing him of conspiracy to commit conspiracy fraud. He could be facing up to five years in prison. His cooperation with authorities, however, will likely lessen his time under his plea deal.

SEC Files Fraud Charges Against Aequitas Management Over Ponzi Scam

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

The Securities and Exchange Commission says that Aequitas Management LLC and four affiliates allegedly bilked over 1,500 investors. One of the affiliates, Aequitas Capital Management, has been in the headlines recently in the wake of news that the investment firm was letting go of almost all of its employees because of financial problems.

According to the regulator, the Oregon-based investment group and three of its executives tried to hide their financial woes while raising over $350M from investors. Meantime, investors were allegedly fooled into believing that they were putting their money in transportation, education, and health-care related investments when really their funds were going toward trying to save the firm. Earlier investors were purportedly paid with the money of newer investors, which is a trademark of a Ponzi scam.

The SEC’s complaint contends that CEO Robert Jesenik and EVP Brian Oliver knew about Aequitas financial problems but kept soliciting investors so they could continue bringing in money to cover the firm’s expenses, including redemptions and interest payments to earlier investors, and try to keep the business afloat. Ex-COO and CFO N. Scott Gillis is accused of hiding the fact that the firm was insolvent. He purportedly knew that Oliver and Jesenik were still soliciting investors.

Meantime, Aequitas’s top executives continued to make “lucrative” salaries as they brought more investors into a “losing venture.” They traveled in private jets and paid for golf outings and dinners for potential investors. They also persuaded prior investors to bring in more funds.