Securities Fraud

Deutsche Bank Resolves US Currency Rigging Case for $190M

Published on: October 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has consented to pay $190M to resolve an investor fraud lawsuit accusing the German lender of manipulating prices in the foreign exchange market. Despite settling, however, the bank maintains that it did not engage in wrongdoing.

Investors accused Deutsche bank and 15 other banks of conspiring to rig key currency benchmark rates by coordinating strategies and sharing confidential trade information and orders. The bank’s traders are accused of meeting in chat rooms to engage in numerous tactics to make more profits regardless of whether or not this meant losses for investors.

Regulator probes into currency rigging have led to $10B in fines imposed against a number of big banks, including the most recent one by the Federal Reserve, which ordered HSBC to pay a $175M fine for not properly monitoring its currency traders. With the investor lawsuits, Credit Suisse Group AG (CS) is the only one of the banks sued by investors that has not settled.

NY Investment Adviser Charged in $19M Ponzi Scam

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

The US Securities and Exchange Commission has filed civil charges against Michael Scronic, a New York-based investment adviser accused of defrauding retail investors in a $19M Ponzi scam. According to the regulator, beginning in 2010, Scronic raised funds from 42 friends and acquaintances for a “risky options trading strategy” involving the Scronic Macro Fund, a fictitious hedge fund in which he was supposedly selling shares. Many of the investors he approached were from the community where he lives. Their investments ranged from $23K to $2.4M.

The SEC contends that Scronic lied to them about his investing track record, claiming he had a long history of proven returns while touting that the investments he was selling were liquid and easily redeemable. In reality, claims the Commission, the investors’ money was draining away because of massive trading losses.

Scronic is accused of not segregating the funds according to investor and transferring their money into his personal brokerage account. His investment agreements with investors stipulated that their funds would be placed in a hedge fund, in which he would serve as acting investment adviser, and he would send them quarterly reports. Scronic also noted in these agreements that he had a fiduciary obligation to investors and would comply with all state and federal laws.

Judge Approves $31M Class Action Securities Settlement Over RCS Capital Shares

Published on: October 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In New York, a federal judge has approved a $31M shareholder fraud settlement reached in the class action securities case filed by investors that purchased stock in former broker-dealer RCS Capital. The plaintiffs, including lead plaintiffs the City of Providence, Rhode Island and the Oklahoma Police Pension Fund, had sued the brokerage firm, its head Nicholas Schorsch, and other ex-executives in 2014 claiming that that RCAP and the other defendants misled investors with “false and misleading statements and omissions” about RCAP’s business prospects.

The investors contend that they purchased RCS Capital stock at prices that were artificially inflated because of these statements. They are claiming massive shareholder losses.

RCAP, once controlled by Schorsch and others, was a privately held brokerage firm that wholesaled American Reality Capital nontraded REITs. Schorsch also owned ARC, which set up and managed the real-estate investment trusts.

SEC Cases: Ex- IT Executive Accused in Stockholder Fraud, Regulator Stops E-B5 Scam in California, and Businessman is Accused of Using Investor Money to Buy Green Bay Packers Tickets

Published on: September 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

ServiceMesh Co-Founder Accused of Fraud
The US Securities and Exchange Commission has filed charges against Eric Pulier, the co-founder of ServiceMesh (SMI) and a former IT executive at Computer Sciences Corporation (CSC). According to the regulator, Pulier bilked CSC of $98M related to its acquisition of SMI.

The SEC contends that Pulier bribed an ex-Commonwealth Bank of Australia VP and another ex-bank executive so that Commonwealth would go into contracts with CSC that would allow SMI to get a $98M earn-out payment from the former as part of the acquisition. This meant that the contracts had to satisfy a $20M revenue threshold prior to a specific date.

Meantime, claims the SEC, Pulier was the recipient of more than $30M of that $98M because he was a majority SMI shareholder. He allegedly used a nonprofit to funnel more than $2.5M to the two ex-Commonwealth Bank of Australia as kickbacks.

Securities Fraud: Ex-LPL Rep is Indicted in Colorado, 15 Convictions in Indiana Securities Case, North Carolina Analyst Faces Criminal Charges, and ex-Illinois Investment Banker is Accused of Insider Trading

Published on: September 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former LPL Broker Indicted for $850K Securities Fraud and Theft
Sonya Camarco, an ex-LPL (LPLA) financial broker, has been indicted in Colorado on seven counts of theft and six counts of securities fraud. She is accused of taking over $850K in client funds for her own use between 1/2013 and 5/2017.

Camarco was fired by LPL last month. Her BrokerCheck record on the FINRA database indicate that she was let go for depositing third-party checks for clients into an account she controlled. Camarco is accused of failing to disclose to clients, including one elderly investor who had dementia, that she was depositing the funds in this manner. If this is true then not only is this a matter of financial fraud but also this would be a case of senior financial fraud.

Securities Fraud Involving Earth Energy Exploration Bilks Investors of $3M
In Indiana, fifteen people were convicted and ordered to prison in a securities fraud case involving Earth Energy Exploration Inc. Investors in Texas and other states lost $3M.

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.

Securities Fraud Cases: State Street to Pay Over $35M Over Alleged Secret Markup Charges and Material Omissions, Braskem to pay Investors $10M To Settle Lawsuit in Petrobas Scandal, & Three Ex-Registered Reps Resolve Market Rigging Case over Attempted Nasdaq Listing

Published on: September 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

State Street Resolves SEC Fraud Charges for $35M
To settle charges brought by the US Securities and Exchange Commission, State Street (STT) will pay over $35M to resolve charges accusing the financial firm of overcharging transition management customers in secret, purportedly making $20M in improper revenue in the process, and leaving out material information related to GovEx, the trading platform it uses for US Treasury securities. The charges against State Street were brought in two separate orders.

In the first SEC order, the firm is accused of using false trading statements, post-trade reports, and pre-trade estimates so it could misrepresent the compensation it received on different transactions. After one customer noticed certain concealed markups, State Street’s employees claimed that these were “inadvertent commissions.”

In the second order, the SEC said that the firm did not notify GovEx subscribers that although the trading platform had been touted as “fair and transparent,” one subscriber was given a “Last Look” option that briefly allowed for the opportunity to turn down matches to quotes that were submitted. The Last Look trading functionality was used by that subscriber to turn down 57 matches, each face valued at $1M. Counterparties were not notified by State Street that Last Look had rejected their orders.

Alleged $283M Institutional Investor Fraud Involving Biotech Companies Leads to Criminal Indictments

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

A federal grand jury has indicted two men for their alleged involvement in a nearly $230M institutional investor fraud scam involving biotech companies. G. Steven Burrill, the owner and CEO of Burrill & Company, and Marc Howard Berger are the two defendants named in the criminal indictment. Burrill is charged with 26 counts of wire fraud, one count of investment adviser fraud, and one count of tax evasion. Berger is charged with multiple accounts of aiding in preparing fraudulent tax returns.

According to the criminal indictment, Burrill sent letters that were false and misleading to persuade limited partners to give capital to the fund. He also allegedly moved millions of dollars in unnecessary management fees to companies under his control, as well as submitted the allegedly fraudulent tax returns.

It was in March of last year that Burrill settled civil charges brought by the US Securities and Exchange Commission accusing him of taking funds from the Burrill Life Sciences Capital Fund III in order to maintain his expensive lifestyle and keep some of his other businesses in operation. The regulator claimed that Burrill took from the Fund III and pretended that these were management fees he was issuing to himself in advance. He then allegedly went on to spend the money on vacations, jewelry, private planes, and other expenses.

Securities Cases: SunTrust Settles Improper Mutual Fund Fee Charges for $1.1M, Ex-Morgan Stanley Barred Over Client He Later Married, and Two RIAs Are Barred for Cherry Picking

Published on: September 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges SunTrust With Collecting Over $1.1M in Excess Mutual Fund Fees

The US Securities and Exchange Commission has filed charges accusing SunTrust Investment Services of collecting over $1.1M in unwarranted fees from mutual fund clients. The SunTrust Banks subsidiary will pay an over $1.1M penalty to resolve the regulator’s civil charges.

According to the regulator’s order, SunTrust Investment Services improperly recommended costlier mutual fund share classes to clients when less expensive shares of these funds were available. The SEC says this was a breach of the investment services firm’s fiduciary duty to take actions in the client’s best interests.

Securities Fraud: Mike Tyson’s Ex-Financial Adviser Gets 33-Month Prison Term, Alleged $15M Oil Drilling Investment Scam Leads to SEC Charges, and FINRA Warns Investors of Possible Stock Schemes After Hurricane Harvey

Published on: September 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Financial Adviser Who Bilked Athletes, Including Mike Tyson, is Sentenced

Former SFX Financial Advisory Management Enterprises financial advisor Brian Ourand is sentenced to thirty years behind bars after he bilked a number of professional athletes, including former heavyweight champion Mike Tyson, ex-NBA basketball players Glen Rice and Dikembe Mutombo, and others. Ourand must also pay back $1M of what he stole.

Not only is he accused of forging the pro athletes’ signatures on checks that he cashed but also of taking credit cards out against these clients’ accounts to cover his own spending, including restaurants, clothing, and other bills. SFX fired him in 2011.

In 2015, Ourand was charged with wire fraud, federal mail fraud, and aggravated identity theft charges. He pleaded guilty to one criminal count of wire fraud.