Securities Fraud

SEC Charges Onix Capital and Its Owner With $5.7M Promissory Note Fraud

Published on: November 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed promissory note fraud charges against Onix Capital and it owner Albert Chang-Rajii. The Miami-based asset management company and Chang are accused of bilking investors who put their money into promissory notes and start-ups, as well as of falsely portraying the Chilean national as an award-winning multi-millionaire “angel” investor who had graduated from Stanford University’a business school.

According to the regulator’s complaint, Chang and Onix Capital sold over $5.7M in promissory notes that they falsely claimed he had guaranteed and told investors that the notes themselves “guaranteed” yearly returns of 12-19%. They also raised over $1.7M that Chang was supposed to invest in companies like Square, Snapchat and Uber.

The SEC said that, in truth, Onix Capital’s investment revenue was “non-existent” and Chang did not have the professional or educational background that he touted. The Commission alleges that rather than use the funds as promised, the money went to Chang and to pay other investors.

Securities Cases: Minnesota Adviser Goes to Prison Over Ponzi Scam, Ex-Morgan Stanley Broker Accused of soliciting $2.7 M from Elderly Investors After He is Barred from the Securities Industry, and 808 Renewable Energy Faces Fraud Charges

Published on: November 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Minnesota-Based Investment Adviser Gets Six-Year Jail Term
According to the Minnesota Department of Commerce, Levi David Lindemann was ordered to serve a 74-month prison sentence—that’s six years—for bilking clients in a Ponzi scam. Lindemann owned Gershwin Financial, which did business using the name Alternative Wealth Solutions. He pleaded guilty to money laundering and federal mail fraud charges.

Minnesota Commerce Commissioner Mike Rothman said that Lindemann abused his position as a financial adviser when he defrauded clients, including older investors. He did this by promising to invest their funds in safe investments but instead used their money to make Ponzi-type payments to clients and pay for his own expenses.

Lindemann’s guilty plea states that he solicited money from about 50 investors. He attempted to hide the securities fraud by generating fake secured notes as supposed evidence of the clients’ investments. The SEC permanently barred him from the securities industry earlier this year.

SEC Accuses Barred Broker of Selling Securities to Older Investors
According to the SEC, ex-Morgan Stanley (MS) broker Rafael Calleja solicited $2.7M from 10 retiree and elderly investors after he had already been barred from the securities industry. The regulator claims that Calleja told investors their principal was insured and they would get a fixed return rate in a year. Meantime, he allegedly used at least $12K of their funds to pay for cruises, golf outings, and other personal expenses. He also purportedly failed to tell investors that his broker license had been revoked.

Securities Fraud Cases: VFG Securities Settles With FINRA Over Nontraded REIT Sales, Massachusetts Seeks To Ban Trader and His Software Company, and Utah Man Who Bilked Over 5,700 in $25M Fraud Gets Prison Sentence

Published on: November 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Broker-Dealer Owner and His Firm Settle SEC Case Alleging Overconcentration of Investor Money In Illiquid Investments

Jason Vanclef and his brokerage firm VFG Securities Inc. have settled the Financial Industry Regulatory Authority’s case accusing them of not adequately supervising their brokers so that clients’ portfolios did not end up concentrated in illiquid investments. Vanclef and VFG Securities, however, are not denying or admitting to the claims made in the complaint.

According to FINRA, from 11/2010 to 6/2012, nearly 95% of the broker-dealer’s revenue came from direct participation programs (DPP) and nontraded real estate investment trusts (nontraded REIT) sales. The illiquid investments were sold retail customers.

FINRA claimed that Vanclef had used “The Wealth Code,” which was the book that he authored, as a sales tool to promote investing in DPPs and nontraded REITs and to attract potential investors. The settlement with the regulator notes that in the book Vanclef repeatedly touted both types of illiquid investments as offering capital preservation and better returns—claims that FINRA said are “inaccurate and misleading” and conflict with information that the firm offered in prospectuses for the nontraded REITs and DPPs.

FINRA Orders Oppenheimer to Pay $3.4M Penalty For Alleged Reporting Failures and Not Giving Discounts to Mutual Fund Clients

Published on: November 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that Oppenheimer & Co. (OPY) must pay $3.4M in sanctions. According to the regulator, for eight years the firm was about four years late when submitting 365 filings about disciplinary actions that it brought against its brokers and in arbitration and litigation settlements. FINRA is also accusing Oppenheimer of not giving seven claimants the documentation they needed in their arbitration against Mark Hotton, an ex-registered representative, and of overcharging 825 customers more than $1M collectively for mutual fund shares over a six-year period.

The self-regulatory organization claims that the late filings to FINRA took place between 2008 and 2016 and that Oppenheimer failed to provide claimants the documentation related to the Mark Hotton allegations between 2010 and 2013. The failure to apply the appropriate fee waiver discount for mutual fund shares purportedly occurred between 2009 and 2015.

Already, Oppenheimer has paid over $6M to settle customer disputes alleging inadequate supervision of Hotton and another $1.25M to 22 customers who did not file arbitration cases but suffered losses, too. Oppenheimer also was ordered to pay a $2.5M fine to FINRA last year over the Hotton claims. The former broker, whom FINRA permanently barred from the securities industry three years ago, was sentenced sentenced to 11 years in prison for stealing client monies and excessively trading their brokerage accounts.

Broker Fraud Cases: Former Newbridge Securities Broker Pleads Guilty in $131 Market Manipulation Scheme and FINRA Bars LPL Financial Broker for Depositing Client Funds Into His Own Account, and Lincoln Financial Securities is Fined $650K for Not Protecting Client Information

Published on: November 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Newbridge Securities Broker Involved in $131M Fraud Pleads Guilty
Gerald Cocuzzo, has pleaded guilty to securities fraud related to his involvement in a $131M market manipulation scam involving Forcefield Energy Inc. (FNRG). According to the U.S. Justice Department, between 1/2009 and 4/2015, Cocuzzo and others sought to bilk investors in the publicly traded company that globally distributes and provides LED lighting products. They did this by artificially manipulating the volume and price of the shares that were traded.

Meantime, Cocuzzo received kickbacks for buying Forcefield stock in his clients’ brokerage accounts. He did not tell the customers that he was receiving these payments. Instead, he and several others sought to hide their involvement.

Newbridge Securities fired Cocuzzo earlier this year following the federal indictment. Before working at Newbridge, he was registered with IAA Financial, previously called CBG Financial Group Inc.

Day Trader Pleads Guilty to Fraud in 2010 Flash Crash

Published on: November 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A British day trader has pleaded guilty to spoofing and wire fraud involving the 2010 Flash Crash. Navinder Singh Sarao was accused of making $40M while spoofing the stock futures market of CME Group Inc. (NASDAQ: CME) for more than five years. He also will forfeit $12.9M of the ill-gotten gains that he made from trading. Sarao is facing a maximum of 30 years in prison. It was during the 2010 Flash Crash that a trading frenzy briefly took down nearly $1 trillion from American equities.

To face the 22 criminal charges against him for market manipulation and fraud, the day trader had to be extradited from the United Kingdom to the United States. US prosecutors accused him of rigging the futures on the S & P 500 Index.

Spoofing involves manipulating prices by placing trade orders but with no plans of executing them. The purpose is to send prices moving in one direction but then cancelling the trades prior to execution in order to make money off the prices going back to where they originally were before the manipulation.

SEC Says Triad Advisors and Securities America Advisors May Have Charged Clients For Mutual Fund with 12b-1 Fees Even Though There Were Less Costlier Options

Published on: November 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to parent firm Ladenburg Thalmann Financial Services Inc. (LTS), the SEC is scrutinizing Securities America Advisors Inc., which is the registered investment adviser arm of independent broker-deal Securities America Inc., and Triad Advisors Inc., over allegations that the firms sold mutual funds that charged clients yearly marketing fees when there were less costly options available. These marketing fees are referred to as 12b-1 fees. It is paid to advisors yearly for continuing education and service.

Ladenburg Thalmann’s disclosed news that its firms were under investigation in its quarterly earnings report. In the report, the firm said that SEC staff gave Securities America Holdings and Triad reports in May and August contending that the two firms had “acted inconsistently” regarding their fiduciary duty when recommending and choosing mutual fund share classes that paid these marketing fees. The SEC pointed out that there had been less costly share classes available in the same funds.

Ladenburg Thalmann said that Securities America Advisors and Triad are looking at the SEC’s assessments and they may have to pay restitution to clients.
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Energy Company Cases: Arizona Corporation Commission Orders Texas Man to Pay $1.4M, Two Other Companies to Pay $11.2M in Restitution to More than 700 Investors, & SEC Files Stock Manipulation Charges Against Multiple Individuals

Published on: November 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Texas Man and His Energy Company Must Pay Arizona Restitution, Penalties for Oil Well-Related Misrepresentations

Texas resident Kenneth White and his Marchant International Resources Inc. must pay almost $1.4M plus $150K in penalties for misrepresenting its participation in two oil well projects that was backed by 12 Arizona investors. The fine was issued by the Arizona Corporation Commission (ACC), which accused White of failing to disclose the complete facts about his business, the company’s experience with well-drilling, and Merchant’s efforts with two wells. The $150K penalty is because White did not disclose that he was previously convicted for a $4.3M felony theft crime when he was marketing himself and his experience in energy extraction.

More than 700 Investors to Get $11.2M in Restitution Over Inadequate Disclosures

White and his company are not the only ones facing fines brought by the ACC in an energy case. Brian C. Hageman and his Hydrotherm Power Corp. and Deluge Inc. now have to pay $11.2M in resittion to over 700 investors. According to the state, while marketing a thermal hydraulic engine project, Hageman did not tell investors that the two companies were no longer in valid operation. He also must pay a $55K administrative penalty for bilking shareholders.

SEC Accuses Minnesota-Based Energy Company Co-Founder of Stock Price Manipulation

The Securities and Exchange Commission has filed charges against the co-founder of a Minnesota-based energy company. Ryan Gilbertson is accused of rigging Dakota Plains Holdings’ stock price while hiding his control of the company in order make a lot of money. The SEC claims that Gilbertson enriched himself by over $16M as he and others allegedly bilked shareholders through price rigging. Meantime, his co-founder, Michael Reger, will pay almost $8M to settle the charges brought against him.

CFTC Cases: IB Capital Fx Ordered to Pay Over $35M in Restitution For Soliciting Investors While Improperly Registered, $21.8M Default Judgment Obtained in Commodity Pool Fraud, and Spoofing Case Leads to Over $38M in Monetary Sanctions

Published on: October 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

IB Capital FX, Two Dutch Citizens to Pay Over $35M to Customers
IB Capital FX, LLC, Emad Echadi, and Michel Geurkink must pay, severally and jointly, a $420K civil penalty and $35M in restitution for soliciting at least $50M from 1,850 customers internationally and in the US even though they lacked the required registration for trading that involved off-exchange margined retail foreign (forex) currency. Also, the firm should have been registered with the US Commodity Futures Trading Commission.

It was the CFTC that obtained the consent order, which permanently prevents the defendants from violating CFTC Regulations and the Commodity Exchange Act further. They also are now subject to permanent registration and trading bans.

$21.8M Default Judgment Issued is in Ponzi Scam
In a default judgment, Puerto Rico resident Alvin Guy Wilkinson and his Wilkinson Financial Opportunity Fund, LP and Chicago Index Partners, LP—both are Connecticut-based financial firms—will jointly and severally pay $21.8M for misappropriating commodity pool funds in a purported Ponzi scam. According to the CFTC’s order, the defendants committed fraud, did not register with the SEC, engaged in misappropriation, and made misrepresentations to the National Futures Association.

American Capital REIT is Accused of Charging Hundreds of Millions of Dollars in Excessive Fees

Published on: October 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A class action securities case brought by stockholders is accusing American Capital Agency Corp. of charging excessive management fees that were given to directors and executive officers as compensation. The real estate investment trust invests in agency mortgaged backed securities “on a leveraged basis.” Because of this, American Capital must pay 90% of profits to investors as dividends.

However, according to William Wall, the lead plaintiff in the REIT case, a number of the individual defendants “improperly funneled” millions of dollars that should have gone to AGNC stockholders. He said that the REIT’s board allegedly forced the company to pay the AGNC Manager “exorbitant” fees in light of the management agreement between the AGNC Manager and AGNC. The fees went to the defendants.

Noting that the REIT’s dividend is a key metric for its success, the class action securities complaint said that in 2012 the board cut AGNC’s dividend by over 50%. The plaintiff said that the board had the contractural right to either end the unfair management agreement or make the AGNC Manager charge fees that were fairer. Instead, AGNC allegedly kept paying the manager over $100M annually even though results were “abysmal.”