Securities and Exchange Commission

SEC Cases: NY Town Accused of Municipal Securities Fraud, Jay Peak Owner Accused in $200M Immigrant Visa Fraud Arrives at Tentative Settlement, and Financial Judgment is Reached in $110M Investor Fraud Against Inofin

Published on: November 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

SEC Files Fraud Charges Against Oyster Bay, NY

The US Securities and Exchange Commission has filed municipal securities fraud charges against the New York City of Oyster Bay along with John Venditto, who was a former supervisor of the town. According to the regulator, the Long Island Town and Venditto defrauded investors through 26 municipal securities offerings from 8/2010 to 12/15. A parallel criminal action has been brought against the ex-town supervisor.

The regulator’s complaint claims Oyster Bay and Venditto hid a number of side deals with a businessman who ran concession stands and restaurants at local facilities. Part of the deals included agreeing to “indirectly guarantee” a number of private loans totaling over $20M to this vendor. “Gifts, bribes, kickbacks, and political support” also were allegedly involved.

SEC Cases: Biotech Company Accused of Misleading Investors & Accounting Fraud, Millennium Management Resolves Illegal Short Selling Charges, Day Trader Alleged Engaged in Unauthorized Trades in Over 100 Brokerage Accounts, and Multiple Traders Allegedly Insider Traded Based on One Tip

Published on: November 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Day Trader is Accused of Unauthorized Trades to Inflate Stock Prices and Make Illegal Profits
The US Securities and Exchange Commission has filed civil charges against Joseph P. Willner accusing him of accessing over 100 brokerage accounts and making unauthorized trades. Meantime, prosecutors in NY, as well as the US Justice Department, have filed criminal charges against him.

The SEC contends that Willner used the allegedly unauthorized trades to inflate a number of companies’ stock prices. He then traded in these same securities in his accounts and made at least $700K in illicit profits.

Willner is accused of fraud and market rigging. The Commission wants back ill-gotten gains in addition to interest, penalties, and a permanent injunction.

SEC Orders Wells Fargo Advisors to Pay $3.5M Penalty

Published on: November 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is ordering Wells Fargo & Co.’s (WFC) wealth management unit to pay $3.5M for alleged anti-money laundering reporting violations. Wells Fargo Advisors agreed to pay the penalty. It is settling the charges but without denying or admitting to the regulator’s findings.

According to the SEC, starting in early 2012, new bank managers started pressing compliance officials to cease in their submission of suspicious activity reports. The failure to file these SARs reports, or delay them, reportedly occurred 50 times in a little over a year and involved accounts for international customers who were previously named in such reports.

Federal law mandates that broker-dealers notify the U.S. Treasury Department’s Financial Crimes Enforcement Network about any transactions of at least $5K that they believe may involve illegal activity. The regulator blames a “new senior manager” that was hired in the brokerage firm’s compliance group and placed in charge of the anti-money laundering program.

UBS to Pay $3.5M Penalty To Settle Allegations that It Disadvantaged Retirement and Charity Accounts During Mutual Fund Transactions

Published on: November 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Inc. (UBS) has agreed to settle US Securities and Exchange Commission charges accusing the brokerage firm of not ensuring that certain charitable brokerage accounts and retail retirement accounts received the sales charge waivers or reduced fee share classes to which they were entitled when they purchased certain mutual funds. However, despite settling, including agreeing to pay a $3.5M penalty, the firm did not admit to or deny the SEC’s findings.

The regulator’s order states that from at least 1/2010 through 6/2015, UBS did not confirm certain customers’ eligibility to purchase from a less costly mutual fund share class and instead recommended that they buy more expensive ones. The customers that were affected purportedly did not have enough information at their disposal to understand that UBS had a conflict of interest when recommending the costlier share classes, such as Class A shares that came with an upfront sales fee and Class B/C shares that charged contingent deferred sales fees at the back-end plus came with costlier ongoing expenses and fees. All of the customers affected had been eligible to buy either no-load Class R shares or load-waved Class A shares.

As a result, claims the Commission, 15,250 customer accounts paid more than $18.5M in excess fees and expenses, upfront sales fees, and “contingent deferred sales charges.” Also, by selling investors the more expensive share classes, UBS earned higher compensations. The brokerage firm is accused of not disclosing to these customers that buying the costlier share classes would hurt their investments’ returns.

NY Investment Adviser Accused of Bilking Non-Profit of $9M

Published on: October 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against John Rogicki. The New York-based financial adviser, who is the chief compliance officer and managing director of Train, Babcock Advisors, LLC, is accused of defrauding a non-profit charitable foundation of $9M. The founder of the Foundation had named Rogicki, who had been her husband’s financial adviser, as the trustee and trust president in her will.

She and Rogicki became friends in the 1990’s when she was already an elderly woman. She died at 97 in 2001. Just a few years before that, it was Rogicki who introduced her to a trusts and estate attorney. This lawyer executed a trust and will that made all the designations to Rogicki.

Rogicki was also the non-profit’s investment adviser and he was tasked with making all investment decisions for the Foundation, including directing all securities transactions in the latter’s advisory account. The Commission believes that Rogicki committed the alleged fraud between 2004 and 2016.

Mining Company Rio Tinto Accused of Fraud, Settles with FCA for $36M

Published on: October 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against Rio Tinto and its ex-CFO Guy Robert Elliot and former CEO Thomas Albanese. The defendants are accused of hiding the Mozambique coal business’ swift and steep drop in value soon after they acquired it for $3.7B. The mining company later would go on to sell Rio Tinto Coal Mozambique for $50M—a much lower figure than the buying price.

The SEC contends that following the acquisition of the coal assets in 2011, the project experienced problems right away because there was “less coal and of lower quality” than what Rio Tinto, Elliot, and Albanese had anticipated. Also, the country of Mozambique, which is where the acquisition occurred, had turned down the barge application. This means that there was no infrastructure to transport the assets. All of this “significantly eroded” the acquisition’s value.

Rio Tinto and the two ex-executives purportedly knew that publicly disclosing the acquisition as a failure, after a previous acquisition of Canadian company Alcan had rendered big losses, would create doubts over their ability to identify and develop mining assets that were “long-term, low cost, and highly profitable.” This purportedly compelled them to hide the problems that arose with the Mozambique acquisition and issue misleading financial statements prior to a number of US debt offerings.

Jury Rules Against Former F-Squared CEO in SEC’s ETF Fraud Case

Published on: October 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury in Boston has found Howard Present, the ex-CEO of F-Squared Investments Inc., liable in the US Securities and Exchange Commission’s civil lawsuit alleging exchange-traded fund fraud. The ruling determined that Present was in violation of the Investment Advisers Act.

According to the regulator, Present sought to defraud investors and acted recklessly in the way he marketed the history of the AlphaSector, which was F-Squared’s flagship product.

The SEC filed its securities fraud lawsuit against Present in 2014. That was when the regulator announced a $35M settlement reached with F-Squared, in which the firm admitted wrongdoing over claims that it misled investors in the way that it falsely marketed AlphaSector as having a lengthy and successful track record that utilized a strategy that a multibillion-dollar wealth manager had developed.

SEC Cases: Whistleblower Awarded Over $1M, Lawyers Accused in Microcap Fraud, and Former Executives Are Charged in $3.3B Accounting Fraud Involving Homex

Published on: October 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Latest Whistleblower Award Raises Total Granted to $162M
The US Securities and Exchange Commission has awarded a whistleblower over $1M for providing “new information and substantial corroborating documentation” that allowed the regulator to bring a successful enforcement action. The securities violation involved a registered entity and had affected retail investors.

This latest award means that the SEC has now awarded over $162M to 47 whistleblowers since the awards program went into effect in 2013. Whistleblowers who give the Commission unique and “credible” information resulting in a successful enforcement case are eligible to receive 10-30% of the funds collected when the monetary sanction imposed is over $1M.

Attorneys Accused of Involvement in Microcap Fraud Scam
The SEC is accusing James M. Schneider and Andrew H. Wilson of involvement in a microcap fraud that involved more than 20 blank check companies that were sold in reverse mergers. Now, the regulator wants ill-gotten gains, civil penalties from the two lawyers, and other relief. A related criminal fraud case has also been brought against Schneider.

SEC Hacking Raises Concerns That Rogue Traders Might Access Filings in EDGAR Before They Are Public

Published on: September 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, news that the US Securities and Exchange Commission’s electronic filing system was hacked is raising concerns of what rogue traders may do if they gained market-moving information before the news went public. This week, the SEC disclosed that that its Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), which stores public company filings, was hacked last year.

While the breach was noticed in 2016, regulators were not made aware that illicit trading could become a repercussion until last month. The majority of the commissioners reportedly didn’t know the hack had occurred until “recent days.” It wasn’t until SEC Chairman Jay Clayton launched a review of the agency’s “cybersecurity vulnerabilities” this Spring that the extent of the hack became clear.

The WSJ reports that according to market veterans, there are several ways in which intruders could trade using the nonpublic information available through Edgar. Companies usually submit earnings filings in advance of them become public knowledge and it is during this time, before market release, when a rogue trader could strike. Another potential target for hackers might be the 8-K form, used by companies to disclose big events, including acquisitions, not yet disclosed medical trials, and other potentially market moving information. 13-D filings submitted by investors with a greater than 5% position in a company—this is information that could generate investor interest—could also be a target.

Insider Trading: Ex-Amazon Financial Analyst Allegedly Tipped Former Fraternity Brother, Man Accused of Giving Merger Info to Brother, Ex-Pricewaterhouse Coopers Auditor is Subject of Securities Case, and Deutsche Börse to Pay $12.5M in Fines

Published on: September 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Amazon Employee and Former College Schoolmate Accused of Insider Trading
The US Securities and Exchange Commission has brought civil insider trading charges against Brett Kennedy and Maziar Rezakhani. Kennedy, an ex- Amazon financial analyst, is accused of leaking confidential information to Rezakhani, who was a former fraternity brother, prior to a company earnings announcement for Amazon being disclosed to the public. Kennedy is also facing criminal charges.

According to the regulator, Kennedy shared the 2015 first quarter earnings information without authorization while employed at Amazon. Rezakhani then allegedly illegally traded on the information in advance of the information’s release to the public and he made over $116K in illicit profits.

Also, on two online communications platforms involving trading, Rezakhani accurately predicted Amazon’s first quarter performance. He is accused of paying Kennedy $10K for the tip and sharing the money with Sam Sadeghi, who gave him trading advice. Sadeghi also faces civil charges.