SEC Enforcement

Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors

Published on: January 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to the Securities and Exchange Commission, ex-investment adviser Sherwin Brown is continuing to offer financial advice even though the regulator barred him from the industry and ordered him to pay $1.3 million for allegedly diverting client monies. Brown now calls himself a “money coach” and has kept his Jamerica Financial Inc. in operation, receiving compensation for his services. At a certain point, the firm, which has since been ordered inactive, had nearly $30 million in assets under management.

The regulator contends that between 6/11 and 5/14, a Wells Fargo & Co. (WFC) account in Jamerica Financial’s name received over 120 deposits totaling $330,000. The deposits were payable to Brown and his company. Notes in check memo lines indicated that the money was for investment advisory services.

Brown, who was barred from the industry in 2011, operates TheOfficialMoneyCoach.com, which includes a blog on investing. The site also promotes his investment books.

BATS Global Market Settles Stock Exchange-Related Claims Involving High-Frequency Traders for $14M

Published on: January 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is charging BATS Global Markets Inc. $14 million to resolve claims that two of the exchanges that the company purchased last year did not disclose important information to investors about the way the markets work. The settlement resolves the regulator’s probe into the way Direct Edge Holdings LLC gave certain high-speed traders the upper hand over others by withholding details about certain orders. Direct Edge and BATS merged together in 2014.

Order types are the directions investors use to trade on exchanges. High-frequency traders will often use complex versions of order types to compete in today’s fast markets. In 2009, Direct Edge offered up a number of new order types after talking with two high-frequency trading firms. However, what it purportedly did not do was properly disclose to the pubic the way the order types worked.

In the SEC order, the agency notes that one trading firm, whose name was not disclosed, told Direct Edge that if it introduced a certain order type, the firm would up the number of orders by over four million more.

SEC Judge Orders Two Investment Advisers to Pay Over $6.3M Related to Bernard Madoff-Linked Hedge Funds

Published on: January 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Securities and Exchange Commission administrative law judge says that investment advisers Larry Grossman and Gregory Adams must pay over $6.3M in restitution and fines for misleading clients who invested in hedge funds tied to Ponzi fraud mastermind Bernie Madoff. Administrative law judge Brenda Murray issued her ruling last month.

The two investment advisers are Sovereign International Asset Management founder Larry Grossman and Gregory Adams, who agreed to buy Sovereign from Grossman in 2008. The firm filed for bankruptcy four years later.

Per the SEC administrative complaint, Grossman did not know that the two hedge funds that he primarily recommended to clients were linked to Madoff. The Commission contends that Grossman violated his fiduciary duties to his clients when he neglected to conduct due diligence on the funds, which were run by a man named Nickolai Battoo. Grossman also purportedly did not notify clients that he was getting paid $3.4 million in consulting fees and referral money for recommending certain funds. After Grossman sold Sovereign to Adams, the former owner continued working in several capacities at the firm and never actually told clients that the sale even happened.

Alternative Fund Manager Faces SEC Case, Criminal Charges Alleging $16M Fraud Involving Fake Loans and GL Beyond Income Fund

Published on: January 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed a civil case against alternative fund manager Daniel Thibeault accusing him of taking some $16 million in assets from the GL Beyond Income Fund (GLBFX). Thibeault was arrested on securities fraud charges over the same matter last month.

According to the SEC, Thibeault took out faked loans using Taft Financial Services, which is an intermediary that he allegedly controlled, to steal money from the funds. The purported securities scam is said to have begun in 2013, after the GL fund started losing money. The Commission says that in certain cases documents for the loans that were withdrawn via Taft are missing or had errors in them, including inaccurate birth dates for borrowers.

The regulator’s complaint also names GL Investment Services, which Thibeault indirectly owns. The registered investment adviser, which had about $130 million in assets from approximately 700 clients, is accused of advising customers to put money in the GL fund.

Securities Fraud News: SEC Charges NY Firm With Stealing Investor Funds, Stock Promoter Accused of Bilking Clients Over Twitter, Facebook Pre-IPO Shares, and NY Lawyer Under Fire for Alleged Ponzi Scam

Published on: December 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges NY Firm, Fund Managers With Securities Fraud

The Securities and Exchange Commission is charging VERO Capital Management, its CFO Steven Downey, President Robert Geiger, and General Counsel George Barbaresi with secretly taking investor money to support a side business. The three men ran funds with offering documents that touted their objective as making good returns via mortgage-backed securities investments. Instead, after winding down the funds, the officers allegedly diverted around $4.4 million to undocumented bridge loans to an affiliate company that was supposedly in risk management. Investors and the funds’ directors were purportedly not notified that these unauthorized loans were taking place.

The SEC Enforcement Division also claims that VERO Capital and the three men compelled the funds to buy three notes totalling $7 million from an affiliate, which is a principal transaction that requires written notice and consent of a client before the transaction can be finished. The division claims that no attempt was made to get this mandatory notice. The regulator is alleging multiple violations of the Investment Advisers Act of 1940 and other rules.

Avon, Bruker Corp. Face FCPA Charges by the SEC

Published on: December 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Avon Products Inc. with Foreign Corrupt Practices Act violations. The regulator claims that the global beauty products company did not put into place controls that could have allowed it to detect and stop gifts and payments made to Chinese government officials. To settle the SEC charges, as well as a parallel case brought by the U.S. Justice Department, Avon entities have consented to pay $135M.

According to the SEC, Avon’s Chinese subsidiary made $8 million of payments in gifts, money, travel, and entertainment to obtain access to government officials involved in direct selling regulations in China. Avon wanted to be the first to test the regulations and in 2006 it was the first to obtain a direct selling business license in that country. Improper payments were purportedly made by the company to prevent negative news stories and fines that could have affected its image. Such payments allegedly included paid travel within China or to Europe or the US, expensive designer gifts, and corporate box tickets to the China Open.

The improper payments allegedly happened from 2004 to 2008. After discovering the possible FCPA issues at the Chinese subsidiary in 2015 and looking further into the matter, no reforms were made. It wasn’t until 2008 that a full internal probe was conducted and only after a whistleblower sent Avon’s CEO a letter.

Exchange-Traded Fund Strategist F-Squared to Pay $35M to Settle Charges that It Misled Investors

Published on: December 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

F-Squared Investments Inc. has consented to pay $35M to settle Securities and Exchange Commission charges accusing the firm of making false claims regarding the performance of a key investment product. F-Squared admitted that it misled clients for several years about its AlphaSector strategy.

F-Squared is the largest marketer of index products that use Exchange-Traded Funds. The SEC claims that F-Squared falsely advertised that the AlphaSector investment strategy had a successful track record that was based on actual investment performance for real clients when, in fact, the algorithm touted didn’t even exist during the noted time period.

The algorithm was the basis of signals sent from a third party data provider indicating when to sell or buy an investment. F-Squared and Howard Present, its co-founder and ex-CEO, used the signals to develop the AlphaSector, a model portfolio of sector ETFs that could be rebalanced from time to time when the signals changed. After its launch in 2008, AlphaSector’s indexes became the company’s largest revenue source.

Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund

Published on: December 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Reliance Financial Advisors and its co-owners Walter F. Grenda Jr. and Timothy S. Dembski with securities fraud. The agency says that the Buffalo, NY-based investment advisory firm and the two men misled clients when recommending that they get involved in a hedge fund managed by portfolio manager Scott M. Stephan.

Grenda and Dembski of Reliance Financial Advisors guided senior investors toward making highly speculative investments in the Prestige Wealth Management Fund, which Stephan managed, even though they allegedly knew he was inexperienced in this type of investing. The clients, who were either close to retirement, retired, or living on fixed incomes, collectively invested around $12 million.

Stephan was supposedly going to employ a trading strategy that involved a specific computer “algorithm,” which actually only day traded. Instead, he started making trades manually, his approach eventually playing a part in the hedge fund’s failure. The SEC has said that Stephan’s investing experience was greatly exaggerated in offering materials. (The majority of his career involved collecting car loans that were overdue.)

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

Published on: December 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations

According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.

Ex-Ameriprise Manager Who Helped with SAC Capital Insider Trading Case Settles Charges Against Her

Published on: December 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Former Ameriprise Financial (AMP) Manager Reema D. Shah, who pleaded guilty to securities fraud earlier this year, will pay $390,103 to settle both the criminal and Securities and Exchange Commission cases against her. Shah, who was a tech stock picker for Ameriprise subsidiary RiverSource Investments, LLC, illegally recommended Yahoo Inc. stock in 2009 after she became privy to nonpublic data about a search engine partnership between the technology company and Microsoft Corp.

According to government officials, Shah traded information between ’04 and ’09 with research analysts, hedge fund managers, and consultants, including Robert W. Kwok, who was the source of the data about Yahoo and Microsoft. Shah previously gave information to Kwok about the company Autodesk and its acquisition of Moldflow Corporation. Kwok went on to buy 1,500 Moldflow shares, allegedly because of the tip, and made a $4,750 profit.

The regulator claims that because of the insider trading information that Kwok gave her, Shah compelled certain funds that she helped manage to buy about $700,000 Yahoo shares. These were later sold at a $388,807 profit.