SEC Enforcement

Texas Securities Cases: Austin Investment Adviser to Pay Over $715K to Settle Cherry Picking Allegations and Dallas-Based Oil and Gas Company is Accused of $95OK Investor Fraud

Published on: March 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Valor Capital Asset Management LLC and its owner, Texas-based investment adviser Robert Mark Magee, have settled US Securities and Exchange Commission charges accusing them of defrauding investors by engaging in cherry picking. As part of the settlement, Magee is banned from the securities industry and will pay over $715K.

The SEC contends that while trading securities in the firm’s omnibus account, Magee would wait to allocate the trades until after watching their performances throughout the day. He would then allocate a disproportionate amount of the more profitable trades to his accounts while sending the trades that were not profitable to his clients. This allowed him to profit at cost to clients. The SEC believes that his ill-gotten gains from cherry picking was over $505K.

For example, notes the SEC, the way in which Magee traded and allocated El Pollo Loco Holdings is “representative” of how he allegedly engaged in cherry picking. For five trading days in a row, trades in LOCO that were profitable went to his own account. When the price went down on the sixth day, he allocated the shares to six Valor client accounts instead of selling the shares at a loss.

Securities News: Wells Fargo’s Wealth Management Division is Reportedly Under Investigation, Merrill Lynch is Accused of Gatekeeping Failures Involving Unregistered Securities Sales, and NYSE Must Pay $14M Over Regulatory Failures

Published on: March 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SEC Reportedly Investigating Wells Fargo Over Possible Inappropriate Investment Sales to Wealth Management Clients

According to news reports, the US Securities and Exchange Commission is investigating Wells Fargo’s (WFC) Wealth Management unit to see whether its clients were inappropriately sold certain in-house investment services even though these were not in their best interests. A source told Bloomberg that the regulator’s role in the probe has not been publicly disclosed.

However, in a regulatory filing, Wells Fargo revealed that it is looking into whether inappropriate recommendations were made related to 401(k) plan rollovers, alternative investments, and brokerage customer referrals to the firm’s “investment and fiduciary-services business.” The bank noted that it was assessing these matters in its wealth management business in the wake of inquiries made by federal agencies.

Bloomberg notes that it was in 2015 that JPMorgan Chase & Co. (JPM) consented to pay $267M over allegations that its customers were not told that it had profited by placing their funds in certain hedge funds and mutual funds that charged particular fees.

Retirement Accounts : Ameriprise Settles SEC Allegations That It Overcharged for Mutual Funds & Fidelity Undergoes Customer Exodus from Flagship Funds

Published on: March 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Ameriprise Financial Services (AMP). The regulator is accusing the brokerage firm and investment adviser of recommending to retail retirement account customers that they purchase mutual fund shares that charged higher fees. Ameriprise purportedly failed to employ sales charge waivers when applicable.

The Commission’s order contends that the broker-dealer neglected to determine when certain retirement account customers qualified for mutual fund share classes that were not as costly.

Instead, the firm would recommend and sell the more costly mutual fund shares even when the less pricey options were available. Ameriprise is accused of not letting these customers know that the firm would make more from the costly mutual fund shares even as their overall investment returns were harmed.

The SEC said that about 1,971 customer accounts paid nearly $1.8M in up-front sales fees that were not warranted, costlier ongoing fees, “contingent deferred sales charges,” and other expenses because of the way that Ameriprise handled the recommendation and sale of mutual funds to retirement account clients.

The firm is cooperating with the regulator and has paid back customers that were affected with interest. Retirement account customers eligible for the less expensive mutual fund share classes have been moved to those classes free of charge.

UK Brokerage Firm is Accused of $50M Stock Fraud as SEC Files Manipulative Trading Charges

Published on: March 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC’s complaint contends that Beaufort and Kyriacou became involved in a pump-and-dump scam with a man that they didn’t know was working for the FBI. With him, they purportedly spoke about using promotions to raise stock prices, engaging in matched trades to affect the stock price, and selling the shares to make a profit.

The SEC filed another complaint contending that in recorded phone calls, HD View CEO Dennis Mancino and CEO of WT Consulting Group LLC William T. Hirschy consented to manipulate the company’s stock by utilizing the undercover agent’s broker network to create a “fraudulent” demand. The two of them were supposed to “manipulate HD View stock” so that its price would go up prior to having the brokers in the agent’s network liquidate their positions. In return, there would be a kickback paid from the money made from trading. The regulator has also filed civil charges against Mancino, Hirschy, and the entities TJM Investments Inc., WT Consulting Group, and DJK Investments 10 Inc.

Three Companies and Their Principals Accused of $11.7M Texas Oil and Gas Offering Fraud

Published on: February 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Ameratex Energy, Inc., Lewis Oil Company, Lewis Oil Corp., their CEO Thomas Lewis, and ex-Ameratex President William Fort over their alleged involvement in an $11.7M Texas oil and gas offering fraud. The companies are based in Plano, Texas.

According to the regulator, the companies and the two men sold unregistered securities to more than 150 investors while making misleading statements about how the proceeds would be used. They also allegedly provided false information regarding prospect wells and sales commissions, as well as provided “false guarantees” regarding the lending out and mingling of funds.

The securities that they offered were not registered with the SEC. The individuals selling the investments were not licensed brokers or associated with brokers that were registered.

SEC Fights to Stop Fraud Scam Targeting Small Businesses

Published on: February 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against “repeat securities law violator” Steven J. Muehler, who it has barred from associating with any broker-dealer since 2016. Once again, the regulator is accusing him of defrauding small businesses.

Muehler and his companies Altavista Capital Markets LLC, Alta Vista Securities, LLC, and Alta Vista Private Client, LLC—all unregistered brokerage firms— offered broker-dealer services to a number of small business clients. Services include finding investors and raising money from them through an online securities change that was supposedly proprietary. In exchange, fees were paid to Muehler and his brokerage firms, as well as rights to a percentage of the funds raised and equity in each business.

Muehler and his firms claimed that they have been successful in raising millions of dollars on clients’ behalf. However, in a previous SEC case, he admitted defrauding small businesses.

Investor Fraud: Strong Investment Management Faces Allegations of Cherry Picking, a $2.5M Financial Scam Leads to Convictions, and a Former Investment Adviser Is Sentenced to Serve Prison Time

Published on: February 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accused Investment Adviser of Profiting from Cherry Picking

The US Securities and Exchange Commission has filed a civil fraud case against Strong Investment Management, which is a California-based investment adviser, and its president/owner Joseph B. Bronson. The regulator is accusing them of running a cherry picking scam that defrauded the firm’s clients.

The Commission contends that Bronson used Strong’s omnibus account to trade securities but would wait to see how they performed during the day before distributing them to certain client accounts. Meantime, Bronson purportedly made healthy profits at cost to clients by cherry picking the trades. He is accused of giving himself trades that were profitable while sending unprofitable ones to firm clients.

The SEC’s complaint contends that in Forms ADV, Bronson and Strong misrepresented trading and allocation practices by falsely stating that every trade would be allocated according to the terms of pre-trade allocation statements with no preference granted to any account. Bronson’s brother, ex-Strong chief compliance officer John B. Engebreston, is accused of not fulfilling his job by failing to make sure that Strong’s policies and procedures for trade allocation were followed. He also is accused of “repeatedly” ignoring “red flags” when it came to Strong’s allocation practices.

Insider Trading: Two Former Executives Accused of Making Illegal Profits from Emeritus Stock Trading Settle SEC Charges, More Final Judgments Reached Against Circle of Amateur Golfers, and Investment Adviser Gets Six Months in Prison

Published on: February 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Medical Products Executives Settle Insider Trading Charges

The US Securities and Exchange Commission announced that insider trading settlements have been reached with two ex-In Home Medical Solutions LLC officers, who are also board members. Todd M. Lavelle and Ara Chackerian are accused of illegally trading in Emeritus Corp. based on inside information.

The regulator contends that LaVelle and Chackerian purchased Emeritus securities after learning about the upcoming merger between the company and Brookdale Senior Living Inc. However, they did this before the deal was disclosed to the public. On the day of the announcement of the merger, they sold their Emeritus shares, allegedly making more than $25K and $157K, respectively, in illegal profits.

LaVelle, who is settling the case but without denying or admitting to the allegations, will pay over $25K in disgorgement, more than $2,600 in prejudgment interest, and an over $25K civil penalty. Chackerian, who is also settling without denying or admitting to the findings, will pay over $157K of disgorgement, the same amount as a civil penalty, and more than $18,600 of prejudgment interest.

Securities Cases: Massachusetts Accuses Scottrade of Running Sales Contests and Targeting Retirees, Wife of Investment Adviser Must Pay $500K in Fraud Case, and Hedge Fund Manager and His Firms Are Ordered to Pay Almost $30M for Diverting Investor Money

Published on: February 21, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Scottrade is Accused of Improper Sales Practices Involving Retirement Accounts

Massachusetts Secretary of the Commonwealth William Galvin has filed a complaint against Scottrade accusing the brokerage firm of engaging in improper sales practices that it knew violated the US Department of Labor’s fiduciary rule regarding impartial conduct standards. Under the rule, advisors and their firms are obligated to act in a fiduciary capacity when making investment recommendations, as well as act in their clients’ best interests.

In his complaint, Galvin is contending that Scottrade employed a culture that includes “aggressive sales patterns,” and that the firm and its agents failed to abide by its duty to Massachusetts retirees between 12/2015 and 6/2016 when it ran a number of national call nights that included the incentive of raffle tickets for those who cold called customers. Scottrade also conducted quarterly sales contests offering at least $490K in prizes. This included the “Q3 Win and Retain Sales Contest “that offered $285K and paid out $2500/agent to the top 25 branches according to percentage increase in new net assets brought in.

BitFunder and Its Founder Face Fraud Allegations

Published on: February 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charges against BitFunder and its founder John E. Montroll. According to the regulator, both of them ran an unregistered securities exchange and committed fraud against those who used the exchange by misappropriating bitcoins and not disclosing a cyberattack in which more than $6,000 bitcoins, worth about $775K, was stolen.

Montroll is accused of selling purported investments that were actually unregistered securities and then misappropriating money from the investments. The offerings were “shares” of “Ukyo.Loan,” also known as “Ukyo Notes.” Buyers were told that money from the sales would go toward private investments and he promised them a .05% daily interest rate.

Instead, Montroll allegedly used some of the proceeds to cover his business and personal expenses and to “replenish” the bitcoins he is accused of misappropriating from an earlier offering. Also, after the cyberattack, Montroll allegedly made it appear as if BitFunder was profitable even though it had a bitcoin deficit.