Securities Fraud

Santander Securities Will Shut Down Its San Juan, Puerto Rico Branch in May

Published on: April 6, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Santander Securities LLC has notified its Puerto Rico clients by letter that its San Juan branch will shutter its doors to the public on May 25. Santander Securities (SAN) is Banco Santander’s investment division. The move is part of the investment wing’s plan to move to a service-only model rather than its model that involves offering investment advice and soliciting sales. A scaled down staff will stay on at the branch after it closes.

Santander Securities in Puerto Rico has come under close scrutiny over the last five years. It is one of the investment firms that came under fire beginning in 2013 when Puerto Rico bonds and bond funds saw a steep drop in value and tens of thousands of investors sustained huge investment losses. Many of these investors should never have even purchased such volatile securities, which were always too risky for their portfolios and not in line with their investment goals. Yet Santander Securities brokers, as well as brokers from UBS Puerto Rico (UBS-PR), Banco Popular, and other investment firms, pushed them on clients, often in very high concentrations.

According to Bloomberg, between late 2012 and 2013, Santander Securities marketed and sold more than $280 million in Puerto Rico closed-end funds and municipal bonds, even as it shed its own holdings of these same securities. In 2015, the investment bank resolved allegations brought by the Financial Industry Regulatory Authority (FINRA) accusing the firm of deficiencies involving its structured product business, including its handling of reverse-convertible securities sales to retail customers in Puerto Rico.

Barclays Settles DOJ’s Mortgage-Backed Securities Fraud Case for $2B

Published on: April 1, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Barclays Capital Inc. (BARC) and a number of its affiliates will pay $2B to settle the United States government’s civil case alleging fraud involving the underwriting and issuance of residential mortgage-backed securities. The settlement comes after a three-year probe. The case is US v. Barclays Capital Inc.

The US accused Barclays of taking part in a fraud to sell three dozen residential mortgage-backed securities deals, causing investors to suffer billions of losses. More than $31B of Alt-A and subprime mortgage loans were securitized and over half of these went on to default. The RMBSs were sold leading up to the 2007 financial crisis.

The bank and its affiliates allegedly misled investors about the quality of the loans backing the RMBS deals, including purposely misrepresenting key features of the loans that involved. The British bank, meantime, maintains that it did not mislead investors about the quality of the loans. The government, however, contends that Barclays committed wire fraud, mail fraud, bank fraud, and violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

Investment Fraud: Man Who Pretended to be Financial Adviser Pleads Guilty to $13M Scam, Ponzi Fraudster is Accused of Bilking Friends & Coworkers, and Real Estate Scammers Must Pay Back Investors $30M

Published on: March 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Man Accused of Targeting Religious Congregation Members Admits to $13M Fraud

Sung “Laurence” Hong has pleaded guilty to money laundering and wire fraud, as well as to pretending to be an investment adviser so he could bilk clients of almost $13M. His plea agreement states that Hong mostly targeted members of religious organizations.

This is not the first time Hong that was caught for investor fraud. He served three years in prison after defrauding a neighbor of about $800K. Now, he may end up back in jail for decades.

SEC Files Case Against Man Accused in $250K Ponzi Scam

The US Securities and Exchange Commission has filed charges against Niket Shah, who is accused of stealing over $250K from coworkers and friends in a Ponzi scam. The regulator’s case comes in the wake of complaints brought by investors.

Wedbush Securities Faces Failure to Supervise Charges Over Broker’s Pump-And-Dump Scam

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

The US Securities and Exchange Commission has filed civil charges against Wedbush Securities Inc. The regulator is accusing the brokerage firm of not supervising registered representative Timary Delorme, 59, and disregarding warning signs that she was involved in a pump-and-dump fraud that targeted retail investors. Delorme has settled the SEC’s charges against her.

According to the SEC, Delorme took part in certain trades to manipulate the stocks. She received benefits, which were paid to her spouse, for getting customers to invest in microcap stocks that were part of a pump-and-dump fraud run by Izak Zirk Engelbrecht, who also has been subject to civil, as well as criminal charges. Engelbrecht, previously called Izak Zirk de Maison before adopting his wife’s last name, is accused of running the scam that involved microcap company Gepco Ltd.

Also, Delorme and her husband are accused of selling shares for Engelbrecht and sending him the money for the sales while she was paid a commission. This purportedly allowed Engelbrecht to hide the sales.

Stock Fraud: Fyre Festival Founder to Pay $26M After Guilty Plea, Promoter is Accused of Defrauding Gold Mining Stock Investors, and SEC Prevents Alleged Pump-And-Dump Scam

Published on: March 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Fyre Festival Founder Pleads Guilty to Wire Fraud and Must Pay Back Investors

Billy McFarland, the founder of the failed Fyre Festival who pleaded guilty to two counts of wire fraud, must may pay back millions of dollars to investors whom he bilked. In Manhattan federal court, McFarland acknowledged that he received more than $26M in investor funds for the Bahamas festival that promised catered dining, luxury accommodations, and renowned performers. Instead, attendees were greeted with no food or tent accommodations.

Billboard reports that eventually prepackaged sandwiches were served, local musicians performed, and the festival was postponed even though it had already begun. Travelers who headed back home encountered rescheduled and delayed flights. Many festival employees went unpaid.

The FBI arrested McFarland last summer. He has since admitted that he solicited investors using bogus documents touting financial holdings that he didn’t possess.

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.

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.

As LJM Preservation and Growth Fund Declines in Value and Announces Shut Down, Investors Suffer Losses

Published on: March 1, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The LJM Preservation and Growth Fund (LJMIX, LJMAX, LJMCX) is facing allegations that it made false and misleading statements to investors. In particular, the fund represented that it was appropriate for capital preservation investors who wanted conservative growth of their account. In reality, the mutual fund exposed investors to high risks that made them vulnerable to massive losses when it lost nearly all of its value within two days, dropping more than 80% earlier this month. In a filing with securities regulators, The LJM Partners, LTD., which is based in Chicago, announced that it was shuttering operations by March 29 and is going into liquidation.

The latest earnings report for the fund, filed at the end of October, noted $768 million of net assets. Reuters reports that the fund’s net assets were $812 million at the start of month but that is now reduced to $14 million. After this massive drop, the fund announced that it would no longer be open to new investments. Soon after, investors brought a class action securities lawsuit against the mutual fund. The plaintiffs are alleging that the LJM Preservation and Growth Fund violated the Securities Act and misled them by claiming it was committed to “preserve capital, particularly in down market.”

LJM, operated by Anthony Caine and Anish Parvatanen, was among a number of companies involved in selling liquid alternative funds that were complex and came with high fees. Investors that sought these funds out were generally hoping to enhance their returns even while reducing the risks. However, the fund did not accomplish that goal. It instead embarked on a risky strategy involving complex options trading and other investments that are not appropriate for any investor seeking capital preservation.

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.