Securities Fraud

Broker News: J.P. Morgan Firms to Pay $1M Fine, FINRA Bans Broker For Money Laundering, and Former Maine Broker Gets 3-Years in Prison for Fraud

Published on: April 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two J.P. Morgan Firms Fined over Deficiencies
J.P. Morgan Securities and J.P. Morgan Clearing Corp. have been fined $775K and $250K respectively for several deficiencies. J.P. Morgan Securities is a broker-dealer of the bank JPMorgan Chase (JPM). .J.P. Morgan Clearing is the custodian, clearing, lending, and settlement arm of the bank. The fines were imposed by FINRA.

According to the self-regulatory organization, the firms committed a number of breaches that violated FINRA and SEC rules. The alleged violations by the brokerage firm mostly affect clients of J.P. Morgan Private Bank and JPMS Heritage Private Client Services, which are two JPMS Global Wealth Management businesses.

From 9/07 to 2014, JPMS purportedly did not send letters to clients confirming modifications to their investment goals within 30 days of the changes. JPMS also allegedly did not collect and check the outside brokerage account statements of nearly 2,000 representatives from ’12 – ’13. Morgan Clearing Corp. is accused of, from ’11-’13, not sending out yearly privacy notices to hundreds of thousands of account holders at the broker-dealers where it provides clearing and custody.

Broker Banned by FINRA for Money Laundering
The Financial Industry Regulatory Authority said that it is barring James Van Doren. The broker was sentenced to 15 months behind bars for a money laundering scam.

According to FINRA, Van Doren took part in unethical behavior by helping to make it possible for a childhood friend and business associate to avoid certain legal duties. The former broker invested in a number of real estate deals with the friend’s company and helped conceal assets when the company couldn’t fulfill its duties.

He also accepted $244K from the friend to hide the assets that his creditors were looking for. He eventually returned most of the funds to the friend while keeping some for financial losses he sustained.

Securities Fraud: Ex-SWS Financial Services Broker Faces Improper Trading Charges, Ex-Fox Commentator Settles Penny Stock Scam Case, and Former Investment Adviser Gets 7-Years in Prison

Published on: April 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Accuses Ex-Broker of Unsuitable Trading Involving Mutual Funds
David Randall Lockey, a former broker, is facing Financial Industry Regulatory Authority charges for allegedly engaging in improper trading of customer accounts while associated with SWS Financial Services Inc. He is no longer with that firm, now called the Hilltop Securities Independent Network. According to the regulator, Lockey took part in “unsuitable short-term trading and switching” involving unit investment trusts and mutual funds in four accounts between ’12 and ’14.

Lockey purportedly made about $75,730 for himself and the firm while engaging in improper trading. Meantime, three of the four customers whose accounts he used sustained losses of $15,699. The fourth customer made a gain of almost $5,000.

FINRA said Lockey has not been registered with any broker-dealer since 2014.

Ex-TV Commentator Settles Penny Stock Fraud Charges with the SEC
The U.S. Securities and Exchange Commission is charging former FOX commentator Tobin Smith with fraud. According to the regulator, Smith, who is also a market analyst, and his NBT Group fraudulently promoted a penny stock to investors.

The SEC said that both Smith and his firm received payments to prepare and distribute e-mails, articles, blogs, and other communication promoting IceWEB Inc. stock. They purportedly failed to fully disclose they were receiving the compensation.

The investors were not made aware of that part of what Smith and NBT were paid was linked to a sustained rise in the data storage company’s share price. The Commission said that marketing materials the investors received included misleading and false statements put there to artificially up the share price and trading volume of IceWEB stock. For example, payment for promotional efforts was $300K and IceWEB stock. NBT could also make over $250K if marketing campaigns proved successful.

California Venture Capitalist to Disgorge $4.875M to Settle Institutional Investor Fraud Charges

Published on: April 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The SEC and G. Steven Burrill have reached an agreement to settle charges accusing the biotech venture capitalist of taking money from a fund overseen by his firm to pay for his expensive lifestyle and help support his other businesses. Burrill is accused of hiding from investors that he siphoned money from Burrill Life Sciences Capital Fund III while claiming that the cash was going toward management fees. In truth, claims the regulator, Burrill used the money to pay for private jets, lavish vacations, gifts, and other items. The investors of the fund include public companies, state pension funds, and others.

Burrill and his Burrill Capital Management have consented to disgorge $4.785M that he is accused of stealing plus pay a $1M penalty. He also will be barred from the securities industry. Commenting on the case, SEC Enforcement Division Director Andrew J. Ceresney said that despite having registration exemption, Burrill and other venture capital advisers have a fiduciary obligation to clients. Ceresney accused Burrill of prioritizing his own interests over that of his clients.

Also settling SEC charges are Burrill Capital Management controller Helena C. Sen and chief legal officer Victor A. Hebert. Hebert is accused of agreeing to call in more money from fund investors even while knowing that the cash would be spent on unrelated expenses. Sen is accused of, along with Burrill, at least twice delaying payment distributions that fund investors were owed so that Burrill’s personal spending and the salaries of Sen and Hebert would continue to be paid. It was in 2013 that the fund’s Investment Committee noticed that all of the capital that had been committed was already spent.

Two Ex-State Street Executives Face Criminal Charges Involving Institutional Investor Fraud

Published on: April 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Federal prosecutors are charging Ross McClellan and Edward Pennings with securities fraud and wire fraud. McLellan was formerly with State Street Corp.’s (STT) brokerage firm unit in the US and Pennings worked for the bank in London. According to the government, the two men secretly charged six clients excess commissions for billions of dollars of securities trades. The clients included government pension funds in Britain and Ireland and a sovereign-wealth fund in the Middle East.

The two former State Street executives allegedly charged clients the trading commissions in addition to the fees that the latter had already agreed to pay and even though they specifically were not supposed to charge them commissions. The men purportedly ran their scam from 2/10 through 9/11, allegedly making millions of dollars in the process.

Although State Street wasn’t officially named in the criminal indictment, The Wall Street Journal reports that the firm’s senior vice president, Carolyn Cichon, verified that two of the bank’s former employees were involved in the matter. It was in 2014 that the U.K. Financial Conduct Authority fined State Street’s unit in that country $32.4M for charging clients $20.2M in excess commissions.

Unregistered Investment Adviser Accused of $53M Ponzi Scam Involving Pre-IPO Companies

Published on: March 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

New Jersey adviser John Bivona is facing U.S. Securities and Exchange Commission charges accusing him of raising over $53M from investors in a Ponzi-like scam that involved the selling of investments in pre-IPO tech companies. However, contends the SEC, instead of investing the funds as intended, he used investor money to pay taxes, legal fees, a car loan, a vacation house mortgages, and cover his nephew’s credit card bills.

The regulator, in its complaint, said Bivona funneled millions of dollars into earlier funds that he and his company managed, while at least $5.7M went to family members, including nephew Frank Mazzola, who also is dealing with SEC charges for a previous investment scam.

The Commission alleges that Bivona raised the money through Saddle River Advisors, which has not registered with the regulator since 2013, and SRA Management. Because he purportedly took the money for his own spending, to pay family bills, and keep different funds running, his firms often never had enough money to buy the shares investors had been promised.

The SEC believes that Bivona was able to keep his Ponzi scam going because he kept transferring funds between over a dozen bank accounts associated with a number of entities. Meantime, investors never received financial statements they were promised.

In its press release announcing the charges, the SEC linked to one of its bulletins that identifies the possible warnings signs that the unregistered offering you are thinking of investing in may be a scam. The Commission noted that unregistered securities are

SEC Charges New York Man With $95M Institutional Investor Fraud

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

The U.S. Securities and Exchange Commission is charging Andrew W.W. Caspersen and shell entity Irving Place III SPV, LLC with defrauding two institutional investors, including a non-profit charitable affiliate of an investment limited partnership. Caspersen is a securities professional associated with a registered brokerage firm. He also is one of the sons of deceased financier Finn Caspersen. According to the SEC, Caspersen offered the two clients promissory notes that were issued by the shell entity, which he controlled. However, Irving Place III SPV, LLC lacked any business operations that were legitimate.

The regulator contends that the New York securities professional obtained $25M from an institutional client last November by falsely representing that about $900 million of Irving Place III SPV’s assets would be securing the investment. According to USA Today, Caspersen told the investor, which was a charitable foundation, that he wanted to invest in an $80M credit facility that he said his firm had established to facilitate investments in the secondary market for private equities.

The promissory note promised 15% yearly interest that was payable quarterly. The note was supposed to be totally redeemable within 90 days upon notice. After receiving the money, Caspersen allegedly took the money for his own use. He later used similar misleading and false statements to solicit another $20M from that investor and $50M from a NY private equity firm. This was after purportedly losing most of the $25M through high-risk options trading. Both times he was unsuccessful in obtaining the founds. In fact, the charitable foundation became suspicious and demanded that he return the $25M, which has yet to happen.

Former Financial Adviser to Chicago Bull’s Scottie Pippen Goes to Prison for Fraud

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

Robert Lunn, the financial adviser who bilked former NBA star Scottie Pippen, has been sentenced to three years behind bars. Lunn was convicted in 2014 of multiple counts of bank fraud.

According to prosecutors, he obtained $3M in loans from Leaders Bank, $1.4M of which he claimed was for Pippen to invest in a private jet. Instead, Lunn used the majority of funds for himself, including to pay for mortgage bills. He also used the money to pay other investment clients.

District Judge Charles Norgle, who imposed the prison term, said during trial that Lunn lied about forging the NBA legend’s signature, as well a claimed he’d received permission to apply for a second loan on behalf of Robert Geras, a retired venture capitalist. Norgle said that Lunn’s scam wasn’t your “garden variety fraud” and that he used “skills and connivance” when presenting himself to his victims.

Pippen was close to retirement when he invested over $20M with Lunn, who came highly recommended by the Bulls. He and his wife Larsa said less than a year after investing with Lunn, that they received a call from their accountant telling them that their adviser may have taken their money.

Pippen testified at Lunn’s criminal trial. He said that he hired Lunn in 1999 and signed papers that the financial adviser sent him for a loan in 2002. As his relationship with Lunn deteriorated, however, he refused to sign documents that would have extended the loan. Pippin claims that the adviser forged his name on the paperwork.

Stockbroker Fraud: Ex-JPMorgan Broker Who Gambled Gets Five Years, FINRA Bars Broker Over Elder Financial Fraud, Risky Alternative Investment Sales and Ex-Broker is Indicted by Jury for Allegedly Bilking Clients of $2.8M

Published on: March 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Former JPMorgan Broker Who Stole Over $20M from Richest Clients, Gambled, Goes to Prison
Michael Oppenheim, a former broker with JPMorgan Chase & CO. (JPM), has been sentenced to five years behind bars. Oppenheim pleaded guilty last year to stealing over $20 million from 10 of his richest clients. At one point Oppenheim managed nearly $90 million for 500 clients. He claims he was addicted to sports gambling.

He began betting on NFL games in 1993 and later got involved in online sports betting. After losing hundreds of thousands of dollars, he began stealing from clients to cover his losses. Oppenheim also started options trading in tech stocks to repay these clients and in one day lost $2.7M. He concealed the theft by providing customers with bogus account statements.

Prosecutors contend that Oppenheim persuaded clients to take out up to millions of dollars from their accounts by promising to put their money in low risk municipal bonds that would be kept at the bank. Instead, he used the funds to get cashier’s checks that he deposited into accounts that were his but located outside the bank. Oppenheim purportedly targeted clients he knew wouldn’t be watching their accounts closely. His scam went on for over seven years.

FINRA Bars Broker for Senior Financial Fraud
The Financial Industry Regulatory Authority has barred David Joseph Escarcega from the financial industry. Escarcega is accused of making a dozen unsuitable recommendations involving debentures tied to the life insurance policy secondary market and targeting elderly clients. He must also pay a $52,270 fine, which is how much he kept in commissions.

According to FINRA, Escarcega sold the debt instruments, which were issued by CWG Holdings Inc., from 3/12 to 6/13. The regulator said that the debentures were very risky and only suitable for investors that could afford to lose all of their investments. The 12 customers involved in this matter were not that type of investor. A lot of the investments were placed in IRAs.
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SEC Cases: Ex-AIG Broker-Dealers to Pay $9.5M For Purportedly Directing Investors Toward Pricier Mutual Funds, California Water District Resolves Bond Offering Charges for $125M, & Businessman is Accused of Stealing Investor Money

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

Former AIG Affiliate Brokerage Firms to Pay $7.5M Fine, $2M Restitution Over High-Priced Mutual Funds
Royal Alliance Associates, FSC Securities Corp., and SagePoint Financial have agreed to pay over $9.5M to resolve Securities and Exchange Commission charges accusing them of guiding clients toward expensive mutual fund share classes so that the firms could garner additional fees. The brokerage firms were formerly under the AIG Advisor Group umbrella.

According to the regulator, the firms put clients in share classes that charged 12b-1 fees for distribution and marketing even though they were eligible to purchase shares that didn’t come with these added fees.

Because of the placement in the costlier fund classes, the firms collected an additional $2M in fees and did not disclose their conflict of interest in choosing the share classes that would make them more money.

The AIG affiliates are accused of not monitoring advisory accounts quarterly to make sure that churning didn’t take place. The SEC order is claiming breach of fiduciary duty and numerous compliance failures.

California Businessman Allegedly Stole Investor Money, Covered Up Fraud
Daniel R. Nase is accused of stealing investor assets and then trying to conceal the theft once the SEC discovered his scam. The regulator claims that the California businessman raised funds from investors via an unregistered offing of common stock in his Bic Real Estate Development Corp. He then used the funds to cover his own bills.

The Commission said that Nase, who was not registered with any state regulator or the SEC to sell investments, told investors that his company would invest in promissory notes and real estate. Instead, he improperly placed those under his name, his wife’s name, of the name of their family trust. He allegedly tried to hide his fraud by investing the assets that he stole back into BIC to make it look like he was raising his equity stake in the company.

California Water District Accused of Misleading Investors in $77M Bond Offering
The SEC is charging Westlands Water District with misleading investors about its financial state while issuing a $77M bond offering. The agricultural water district is the largest one in the state of California.

According to the SEC, Westland, in prior bond offerings, consented to keep a 1.25 debt service coverage ratio but discovered in 2010 that a lower water supply and drought conditions would keep it from making enough money to keep up that ratio, which measures an issuer’s ability to make future bond payments. To meet the ratio without upping customer rates, Westlands reclassified the funds.
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Banc de Binary to Settle Fraud Charges With SEC, CFTC for $11M

Published on: March 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Banc de Binary Ltd. has settled a fraud lawsuit by the Commodity Futures Trading Commission and the SEC accusing the Cypriot financial trading company of illegally signing American investors to join its binary options trading program. According to the regulators, from 2011 and 2013, Banc de Binary pursued and took orders from U.S. customers on contracts connected to currency, commodity, and stock prices. By doing this, the company purportedly got around a ban in the US that prohibited off-exchange binary option contracts and received net deposits of $11M from over 6,000 U.S. customers

As part of the settlement, the financial trading company has agreed to pay $7.1M in disgorgement and restitution and $2M in penalties to the CFTC. It will pay the SEC $1.95M in civil penalties. $9.05M of the settlement will go toward paying back the U.S. customers who suffered harm in this matter. Oren Laurent, who is the founder of Banc de Binary, will pay $150K in the settlement.

Banc de Binary is considered the biggest binary options operator. Binary options offer all or nothing payouts according to price moves. They remain unregulated in a lot of the world.