SEC Category Archives — Page 12 of 24 — Investor Lawyers Blog Published By Investment Fraud Attorneys

UBS Puerto Rico To Pay the SEC $15M Over Closed-End Bond Fund Sales

Published on: September 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Inc. of Puerto Rico (UBS PR) has consented to pay $15 million to resolve the Securities and Exchange Commission’s claims related to the brokerage firm’s supervision of the sale of its closed-end Puerto Rico bond funds (CEFs). The SEC contends that UBS PR did not properly supervise ex-broker Jose Ramirez, who is accused of increasing his compensation by at least $2.8 million when he allegedly had customers improperly borrow funds to invest in Puerto Rico bond funds. UBS fired Ramirez last year.

The funds came from UBS Bank USA, which is a bank affiliated with UBS PR. Under bank and UBS rule, the funds from UBS Bank are not allowed to be used to carry or purchase securities. According to the SEC, not only was using the funds from the Bank a violation, investors were placed at risk of losses while Ramirez profited. The SEC has filed a separate complaint against the ex-UBS broker.

The regulator claims that Ramirez misled customers about how safe the CEFs were, as well as misrepresented the risks involved. He purportedly lied to his branch manager when he was asked about suspect transactions.

To avoid getting caught, Ramirez allegedly told customers to move money from their credit line to an external bank account before placing the funds into their brokerage account at UBS PR and then buying the CEFs. The CEFs, which were heavily invested in Puerto Rico bonds, dropped in value when the Puerto Rican bond market started to decline in the Fall of 2013. Customers then had a choice of either paying down part of the loans or risk liquidation of their investments.

The $15 million settlement will be put into a fund for investors who sustained losses when the funds dropped in value. The Commission’s order instituting a settled administrative proceeding claims that UBS PR did not have the systems and procedures to prevent or detect the misconduct that Ramirez was engaging in. Even though UBS PR was allegedly apprised at least twice that customers of Ramirez might be violating the loan policy, the brokerage firm’s policies did not provide for reasonable follow up. UBS PR also purportedly lacked a system to make sure that credit line proceeds that were moved out of firm accounts were not used to buy securities.
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SEC Files Fraud Charges in $18M Arizona Securities Scam that Bilked 225 Investors

Published on: September 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging James Hinkelday, Jason Mogler, Brian Buckley, Casimer Polanchek, and James Stevens with bilking millions of dollars from investors. The regulators claims that the Arizona residents misappropriated about 97% of $18 million from 225 investors who thought their money was being used to acquire and develop beachfront property in Mexico, run recycling facilities, and buy foreclosed residential properties to resell. The men are accused of making Ponzi-like payments to investors who threatened to sue them.

In its complaint, the SEC says that the men-none of whom were registered with the agency to sell investments-solicited prospective investors via magazine, radio, and Internet ads, along with cold calls, marketing materials, and investor presentations. Polanchek purportedly looked for investors at cruises, bars, and self-help seminars. The men also were involved in The Investment Roadshow, which is an Arizona radio program that instructed listeners on how to use self-direct IRAs to put money in their companies. Prospective investors were guided to a website where they could schedule appointments and join seminars to find out more about the investment opportunities.
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SEC Gets Asset Freeze in Alleged $125M Fraud Case Involving Chinese Investors Seeking US Immigration

Published on: August 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission said that an asset freeze has been imposed on Lobsang Dargey, who is accused of bilking Chinese investors looking to obtain residency in the United States through the EB-5 Immigrant Investor Pilot Program. The regulator contends that Dargey and his Path America companies raised $125 million for two real estate projects in Washington State while diverting $14 million for other real estate projects and using $3 million for personal spending.

With the EB-5 program, foreign citizens can qualify for residency in the country as long as they invest at least $500,000 in a specific project that preserves or creates at least 10 jobs in the U.S. Dargey and his companies purportedly got 250 Chinese investors to invest money under the program.

The SEC said that Darby told U.S. Citizenship and Immigration Services and the Chinese investors that the funds would go toward a downtown Seattle skyscraper and a residential/commercial development with a farmer’s market in Everett. The regulator also claims that Darby misled investors about their chances of getting permanent residency for their investments. For instance, an investor’s application for residency can be denied if his/her funds are used for a project that materially deviates from the plan that was approved by the USCIS.
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SEC Cases: Pennsylvania Lawyer is Charged with Insider Trading, San Diego Investment Adviser is Accused of Stealing Client Funds, and New York Man is Arrested for Fraud

Published on: August 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Pennsylvania Attorney of Insider Trading
The U.S. Securities and Exchange Commission is charging Herbert K. Sudfeld with insider trading ahead of the announcement that Nationwide Mutual Insurance Company and Harleysville were about to merge in a $760 million deal. The regulator contends that the Pennsylvania attorney illegally traded on the information, which caused Harleysville’s stock price to rise 87% when the announcement went public.

Sudfeld, who was a real estate partner at a law firm that gave Harleysville counsel on the merger, learned about the impending deal from a conversation involving a lawyer and the legal assistant they shared. That attorney was involved in the deal.

Sudfeld is accused of stealing the information and buying Harleysville stock. After the merger was announced, he purportedly sold the share he had bought, making about $79,000 in illegal profits. Prosecutors in Pennsylvania have filed a parallel criminal action against him.

San Diego Investment Adviser Accused of Stealing Client Money, Running Ponzi Scam
Paul Lee Moore and his now defunct investment advisory firm are charged with bilking client funds and operating a Ponzi scheme. According to the complaint filed by the SEC, Moore and Coast Capital Management raised $2.6 million from clients, and he allegedly siphoned almost $2 million for his personal spending.

The regulator said that Moore took the rest of the money and, in Ponzi scam-fashion, paid earlier clients with funds brought in by new clients. He is accused of sending out bogus account statements to clients, as well as sharing these statements with prospective clients. The California investment adviser purportedly lied about his educational background, employment history, as well as about how much Coast Capital managed in assets.
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SEC Stops Ponzi Scam that Targeted Portuguese and Spanish Communities

Published on: July 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is filing fraud charges against DFRF Enterprises for running a Ponzi scheme and pyramid scam that targeted investors belonging to Portuguese and Spanish-speaking communities. According to the regulator, the company claimed to run over 50 gold mines in Africa and Brazil even though its revenues came solely from selling membership interests to investors.

The alleged scammers raised over $15 million, bilking at least 1,400 investors. The owner of DFRF, Daniel Fernandes Rojo Filho, allegedly took over $6 million of this money to pay for personal expenses, including luxury vehicles and other lavish spending.

The regulator contends that in 2014, Filho and others started selling memberships in DFRF. Investors were recruited through a pyramid-like scam, with commissions paid to earlier investors for recruiting new members, much like a Ponzi scheme.

Many of these sales took place through meetings with prospective investors in hotel conference rooms, businesses, and homes, mostly in Massachusetts. The investment opportunity was also promoted on video through the Internet. In less than a year, membership sales rose from under $100,000 in June 2014 to over $4 million for the month of March 2015.
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SEC Appeals Its In-House Agency Judge’s Decision to Throw Out Charges Against Financial Advisers Paid by Fidelity to Push Specific Mutual Funds

Published on: July 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Securities and Exchange Commission employees are appealing a ruling by an administrative law judge dismissing charges against two financial advisers accused of not notifying clients that Fidelity Investments (FNF) had paid them to sell specific mutual funds. In the Texas securities case, SEC Administrative Law Judge James E. Grimes rejected claims that The Robare Group and two of its owners violated the law by failing to adequately disclose that they had a financial relationship with the brokerage firm. Grimes said that from listening to Mark L. Robare and his son-in-law Jack L. Jones Jr. testify, he was hard pressed to imagine them attempting to bilk anyone. This is one of the few cases presided over by one of its judges that the SEC has lost.

Fidelity is The Robare Group’s custodian. For the last 11 years, the registered investment advisor has been part of a program in which Fidelity pays it a portion of the revenue earned from the sale of certain third-party mutual funds. The payment goes to the adviser who made the mutual fund sale happen.

Advisors are given access to the funds without any transaction fees. As the custodian, Fidelity refers to payments made to advisers not as commission but as compensation for shareholder administrative fees.

In their appeal, the SEC staffers said that they feared Grimes’ ruling in this case establishes a troubling precedent that shifts the burden of full disclosure of a conflict interest from an investment adviser to a compliance consultant. They said this could allow an investment adviser to be excused from certain securities violations as long as he has a compliance consultant that has not “affirmatively” objected to a “particular disclosure.”
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SEC Accuses Chicago Underwriters of Municipal Bond Offerings Fraud

Published on: June 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed enforcement actions against 36 municipal underwriting firms, most of them located in the Chicago area, for alleged violations involving municipal bond offerings. These are the first cases against underwriters brought under the Municipalities Continuing Disclosure Cooperation Initiative. Goldman Sachs & Co. (GS), Robert W. Baird & Co., J.P. Morgan Securities (JPM), Raymond James & Associates, Inc. (RJF), Morgan Stanley & Co. (MS), Citigroup Global Markets Inc. (C), Stifel, Nicolaus & Company, Inc. (SF), Piper Jaffray & Co. (PJC), Merrill Lynch, Pierce, Fenner & Smith Inc., and RBC Capital Markets, LLC were the firms ordered to pay the largest financial penalty of $500,000, respectively.

The program offers favorable settlement terms to municipal bond issuers and underwriters that voluntarily self-report violations to securities laws, including those involving omissions and material misstatements in muni bond offering documents. In these actions, the SEC contends that between ’10 and ’14, the firms violated federal securities law when they sold muni bonds.

These acts purportedly included using offering documents that omitted or included materially false statements regarding the bond issuers’ compliance with continuing disclosure duties. The firms also are accused of not doing a good enough job of detecting omissions and misstatements before making bond sales to customers.

Continuing disclosure allows muni bond investors to have access to annual financial reports and other data on a continual basis. The SEC said that the issuers’ failure to comply with the duties related to continuing disclosure posed a challenge to investors wanting that information.
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SEC File Action Against Company Accused of Offering Security-Based Swaps to Retail Investors

Published on: June 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission said it has brought an enforcement action against Sand Hill Exchange for illegally offering complex derivative products to retail investors. The regulator said that the company, based in in Silicon Valley, was offering and selling security-based swaps contracts to investors who did not qualify as “eligible contract participants” (ECPs) according to the law.

Sand Hill Exchange was started as an online business not unlike a fantasy sports league. It dealt with the valuation of private start up companies in the area. However, its founders Elaine Ou and Gerrit Hall ended up revising the company business model numerous times, with Sand Hill eventually inviting people to use real funds to purchase and sell contracts referencing companies that have not yet had their initial public offering.

To fund accounts, Sand Hill solicited investors to use dollars or bitcoins. Users, however, were not asked about their financial holdings nor were offerings restricted to those who held a certain number of assets. Instead, anyone could qualify.

It was the Dodd-Frank Act that put into place two integral requirements for security-based swaps offered or sold to retail investors who fail to meet the eligible contract participant standards. First, there has to be a registration statement for the offering, and second, the contracts must be sold on a national securities exchange. The requirements give the retail investors full access to key information about the offering while limiting such transactions to platforms that are only subject to the highest regulatory scrutiny.
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SEC News: New Rules for Investment Advisers & Companies Proposed, Pilot to Evaluate Tick Size Impact Approved, Outreach Program to Help Ensure Compliance Unveiled, and Cross-Border Swap Rules Approved

Published on: May 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Makes Proposals to Enhance Disclosure and Reporting by Investment Companies and Advisers

The U.S. Securities and Exchange Commission is proposing forms, amendments, and rules that will update and improve the way investment firms and their advisers disclose and report information. This would enhance the quality of data available to investors while allowing the regulator to do a better job of gathering information from firms and their advisers.

The proposals would affect data reporting for exchange-traded funds, mutual funds, and other registered investment companies, which would have to submit a monthly portfolio reporting form and a yearly one as well. Standardized and enhanced disclosure in financial statements would be required, and firms would be able to publish shareholder reports online. Also, investment advisers would have to provide more information to the SEC and investors in registration and reporting forms.

Florida Microcap Co. Accused of Bilking Over 400 Investors of More than $11M

Published on: May 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing eCareer Holdings Inc. and its executives for fraud. According to the regulator, the online staffing company bilked over 400 investors of $11 million when it miserpresented the company and sold shares that were unregistered. Also accused of fraud are three boiler room brokers who tried to conceal that they were barred from the industry.

According to the SEC’s microcap fraud case, investors were bilked in cold calls that were made through a boiler room run by Frederick Birks, Dean A. Esposito, and Joseph DeVito. The three of them and their sales agents were hired by eCareer CEO Joseph J. Azzata.

Investors were told their funds would go toward working capital to develop the company’s online job staffing business. Instead, approximately 30% of their money went toward outrageous fees to the agents and brokers.