Securities Fraud

Securities Fraud Cases: Investment Adviser Faces SEC Charges, Woman Pleads Guilty to $1.1M Financial Scam, and NJ Man is Accused of $13M Pump-and-Dump Scam

Published on: December 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Connecticut Firm Accused of Conflict of Interest Involving $43M Fraud
The Securities and Exchange Commission is filing fraud charges against Atlantic Asset Management LLC (AAM). The regulator says that the Connecticut-based investment advisory firm got clients involved in certain bonds that resulted in an undisclosed financial benefit to a brokerage firm whose parent company is part owner of AAM.

The firm is accused of investing over $43M of investor money in illiquid bonds that were issued by a Native American tribal corporation. The sales provided the brokerage-firm with a private placement fee.

The SEC says that investors should have been notified of the financial gain that resulted and the firm violated its obligation to them when it placed its own financial interests before client’s interests.

In its complaint the SEC says that it was a representative from BFG Socially Responsible Investing Ltd., which partially owns AAM, who suggested that the investment advisory firm buy the illiquid bonds for clients. AAM purportedly knew that the bond sale proceeds would to go toward an annuity that the parent company provided.

The Commission says that after finding out that their money had been placed in the bonds, several AAM clients demanded that the investments be unwound but their requests were unsuccessful.

Ex-Investment Adviser Pleads Guilty to Securities and Annuities Scam
Janet Fooshee has pleaded guilty to 31 charges related to a $1.178M financial scam involving securities and annuities. The 63-year-old former New Jersey investment adviser admitted to fraudulently servicing over 100 financial account statements that increased 14 client accounts by about $818K collectively. She also admitted to stealing about $151K from clients, keeping over $190K in unlawful fees, defrauding another investor of almost $81K, and stealing the identities of about eight corporations. Fooshee said that she illegally took funds from over two dozen retirees and others over a period spanning a decade.

Fooshee also used the names Janet Katz and Janet Gurley. As part of the plea deal she must pay $415K in restitution. A seven-year prison term is recommended for her.
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NY Man Convicted in $800K Hedge Fund Fraud

Published on: December 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

New York Attorney General Eric Schneiderman has issued a statement announcing the conviction of Mazzam Ifzal Malik, also known as Mark Malik, on 28 criminal charges that involved him stealing over $800,000 from investors. According to the state, the hedge fund manager set up fake hedge funds so he could take investors’ money.

During cold calls to investors in the United States and abroad, Malik claimed that he had extensive experience on Wall Street, including having managed over $5 billion in assets. Schneiderman, however, said that the 33-year-old only had been a financial consulting trainee. He also was a registered broker but for just two years.
Malik’s real job experience involved working as a traffic agent, waiter, and security guard.

Yet with this lack of experience, from ’11-’15 Malik managed the following bogus hedge funds:

• Wall Street Creative Partners • Wolf Hedge LLC.
• American Bridge Investments L.P.
• Seven Sages Capital, L.P.
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SEC Files Charges Against Traders for Options Trading Scams

Published on: November 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed charges against ex-broker Richard Kenney and twin brothers Shahryar Afshar and Behruz Afshar. The regulator is accusing them of going around market structure rules and engaging in options trading scams. The regulator claims that the three men improperly traded options to garner lower fees and gain execution priority. They also purportedly took part in spoofing so they could get liquidity rebates.

SEC Enforcement Division Director Andrew Ceresney said that the men’s alleged actions fooled the options exchanges and placed other participants at a disadvantage. The regulator maintains that because of their purported wrongdoing, the two brothers and Kenney were able to get benefits that were not intended for professional traders.

Specifically, according to the SEC order: Even though the Afshars’ accounts should have gotten the “professional” designation for acting as non-broker-dealers that placed over 390 orders/day during the subsequent quarter, they were able to place orders as “customer” non-broker dealers. They did this by alternating trading between accounts. After one account became designated “professional” for the next quarter, they would use the other “customer” account and then trade off the next quarter.

The SEC says that Kenny and the Afshars were able to execute this scam through misrepresentations that made it seem as if just one of the brothers owned Fineline Trading Group, LLC while the other was supposedly the sole owner of Makino Capital, LLC.
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SEC Cases: Ex-Stockbroker Accused of Bilking Investor for Home Renovations, Marwood Group Admits to Wrongdoing Over Compliance Failures, and Ex-Goldman Sachs Employee Faces Insider Trading Charges

Published on: November 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Former Stockbroker Raises Over $1.2M from Customers to Remodel His Home
The Securities and Exchange Commission is charging ex-stockbroker Bernard M. Parker with Securities Act of 1933 and Securities Exchange Act of 1934 violations, as well as violations of Rule 10b-5. The regulator says that Parker raised over $1.2M from long-term brokerage customers and others by getting them to think they were buying real estate tax client certificates and would make up to 9% yearly interest.

Instead, says the SEC, Parker only used a small part of that money to buy the liens. He used their other funds to remodel his house, pay his father-in-law’s bills, and make car payments. The agency also claims that the ex-broker conducted the unregistered and fraudulent investment offering using his Parker Financial Services from ’08 to ’14. He also purportedly failed to notify the investment advisory firm and broker-dealer where he was dually registered about his side business.

The Attorney’s Office for the Western District of Pennsylvania has filed criminal charges against Parker in a parallel case over the alleged broker fraud.

Political Intelligence Firm Admits to Compliance Failures
Marwood Group Research LLC has admitted to compliance failures and will settle the SEC’s case against it by paying a $375,000 penalty. According to the Commission, the firm did not properly notify compliance officers about the times that analysts received potential material nonpublic data from government employees.

The firm’s own written policies and procedures are supposed to play a key part in Marwood Group’s efforts to stop nonpublic and confidential data from reaching its clients so as not to influence their decisions regarding securities trading. Yet its misconduct happened in 2013 when analysts were looking for information about pending regulatory approvals and policies at the Food and Drug Administration and the Centers for Medicare & Medicaid Services.
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NFL Linebacker Dwight Freeney is Allowed to Move Forward with Securities Fraud Lawsuit Against Bank of America

Published on: November 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Dwight Freeney, the linebacker for the Arizona Cardinals will be able to move forward with his securities fraud case naming Bank of America Corp. (BAC). According to the National Football League player, the bank was complicit in a scam that compelled him to lose over $20M and force his restaurant to shut down. Bank of America had recruited Freeney in 2010 because they wanted to manage his assets.

Its Merrill Lynch unit had tried to have the misrepresentations and fraud claims against it dismissed. Frenzy, however, contends that the head of his financial advisory team at the bank arranged for now ex-bank employee Eva Weinberg, to act as the football player’s main liaison with Bank of America. The bank also referred Freeney to Michael Stern, who was Weinberg’s “paramour.” Stern purportedly used a fake name and already had a record for fraud, forgery, and theft. He was to advise the NFL star financially.

Freeney and his company Roof Group say that the bank and its adviser Michael Bock aided and abetted the scam that bilked his accounts of over $8.5million. He says he lost over $20 million because of the fraud. He believes that Bank of America and Bock were negligent in that they did not protect him from the financial scam, which he says began in 2010 when Weinberg still worked at Merrill Lynch. Freeney also believes that Bank of America and Bock fraudulently induced him into signing with the firm by keeping information from him that could have prevented him from getting sucked into the scam.
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Securities Fraud Cases: Wedbush to Pay $813K Over Investment Fraud Allegations, SEC Files Pump-and-Dump Charges in Marley Coffee Case, and CFTC Accuses IB Capital of Soliciting $50M for Forex Trading While Unregistered

Published on: November 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Wedbush to Pay Trusts, Family Members Over $813,000
A Financial Industry Regulatory Authority Panel says that Wedbush securities and investment advisor Kevin Thomas Scarpelli must jointly and severally pay several investors over $813,000 to resolve allegations of professional negligence and failure to supervise related to investments made in Natural Resources USA Corp. The respondents denied the allegations and asked that the claims be thrown own.

After considering the pleadings, evidence, and testimony, the panel decided that Wedbush and Scarpelli must pay claimants: Mary L. Riscornia TTEE nearly $263,000, Jennifer Tiscornia over $252,313, Nicolas E. Toussaint over $55,300, Nicolas E. Toussaint TTEE over $1800, Michael J. Nicolai over $18,4000, Michael Nicolai TTEE over $156,221, Jeffrey M. Nicolai over $22,154, Katherine M. Nicolai over $22,000 and Alexandria P. Nicolai over $22,000 in damages, interest, legal fees, and costs. The FINRA panel denied Scarpelli’s request to have his record expunged of this securities case.

SEC Files Charges in $78M Pump-and-Dump Scam Involving Jammin’ Java Stock, Marley Trademark
The Securities and Exchange Commission is accusing ex-Jammin’ Java CEO Shane Whittle of masterminding a $78 million pump-and-dump scam involving the company’s shares. Jammin’ Java operates Marley Coffee, which uses the late reggae legend Bob Marley’s trademark to sell products.

According to the regulator, Whittle used a reverse merger to-in secret-get control of millions of Jammin’ Java shares, which he then spread to offshore entities under the control of Michael Sun, Wayne Weaver, and René Berlinger. The shares were dumped on the public after their price rose in the wake of bogus promotional campaigns. Whittle purportedly hid the scam by making misleading omissions and statements in reports submitted to the SEC.
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SEC Says Amish Investors Were Bilked in $3.9M Securities Fraud

Published on: November 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is suing Earl D. Miller for securities fraud. According to the regulator, the Indiana man bilked investors, many of whom were Amish and new to investing, through private investment vehicles 5 Star Capital LLC and 5 Star Commercial LLC.

The SEC says Miller began recruiting investors last year. The private investment entities he created were supposed to invest in real estate property and green products with patents that one of the companies owned. However, claims the regulator, no patents were actually owned. Instead, contends the agency, the money went to companies that were supposedly developing other products, including energy-efficient washing machines and a pedal-run wheelchair. The bulk of these investments quickly failed. Most of the funds were invested in loans and were supposed to result in interest payments every month. However, such payments only were issued for five months and then they stopped completely.

Miller marketed his investment services in Amish newspapers and in Amish community meetings. He gave investors promissory notes for their money. The notes came with a fixed 8-12%/year return rate, which is a lot higher than the rates for other fixed-return investments, including bank deposits. He also purportedly said he was not paid any money for managing the fund even though he allegedly took $1M for his own spending. At least 70 investors were bilked.
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Virtus Investment Advisers to Pay $16.5M to Settle False Performances Claims Related to ETF Portfolio Strategy

Published on: November 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that Virtus Investment Advisers will pay $16.5M to resolve charges accusing the investment management firm of misleading mutual fund investors and others using ads with false historical performance information about exchange-traded fund portfolio strategy AlphaSector. According to the regulator, the firm publicized a performance track record that it got from F-Squared that was substantially overstated. Virtus had hired F-Squared as a mutual fund subadvisor as well as a subadvisor for those that followed AlphaSector.

The SEC, following its probe, said that Virtus falsely stated in SEC filings, client presentations, marketing collateral, and other communications that the AlphaSector’s strategy had a performance history going as far back as 2001 and had for a number years outperformed the S & P 500 Index. The investment management firm is accused of accepting F-Squared’s misrepresentations as fact while disregarding the red flags that raised doubts about these statements.

Six years ago Virtus recommended that shareholders of specific mutual funds and the boards of trustees approve a modification in strategy and management to AlphaSector and F-Squared. This recommendation was made because of the false historical data on AlphaSector.

Massachusetts Regulatory Charges Realty Capital Securities With Fraud Related to Proxy Votes in Real Estate Deals

Published on: November 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is charging Realty Capital Securities with fraud involving the purported gathering of proxy votes to support AR Capital-sponsored real estate deals. Realty Capital Securities is part of RCS Capital Corp., also known as RCAP. Galvin wants to take away RCS’s registration as a brokerage firm in the state.

An RCS employee provided details about how colleagues pretended to be shareholders on proxy calls so they could vote for deals that were in management’s best interests. There was purportedly no training over how to deal with proxy solicitation. Oversight is said to have involved RCS management regularly asking employees for updates about proxy votes and whether any progress had been made.

The Massachusetts regulator said that Realty Capital Securities agents pretended to be shareholders and cast bogus votes for investment programs that were sponsored by Nicholas Schorsch’s AR Capital. Schorsch is a principal shareholder in RSC Capital, which is the wholesaler broker-dealer of RCAP.

For example, reports InvestmentNews, fake votes were cast in a September vote at a Business Development Corporation of America meeting. The vote was required so that Apollo Global Management could purchase real estate assets from Schorsch. Galvin said that BDCA paid RCS $375K for the solicitation of the proxy votes.

Although the deal failed this week—Apollo was supposed to buy a $378M majority stake in the company—the global management firm was able to buy RCS’s wholesaling business, including brokerage firms Strategic Capital and Realty Capital Securities, at a lower price of $6M.

Securities Fraud Headlines: NBA’s Tim Duncan Sues Financial Adviser Again, JPMorgan Hackers Face Criminal Charges, and FINRA Warns Military Vets May Be Targeted by Their Own

Published on: November 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Spurs Star Tim Duncan Says Ex-Financial Adviser Bilked Him of Millions

NBA star Tim Duncan is suing his former financial adviser again. The San Antonio Spurs player says that Charles Banks cost him millions of dollars because he persuaded him to invest $1.1 million in a cosmetics company. Banks purportedly told him that the company was profitable even though it was about to go bankrupt.

Duncan sued Banks in January in another Texas securities case accusing the latter of making unsuitable recommendations that cost him some $25 million. Banks gave financial advice to the NBA player for almost twenty years. Duncan claims that some of the recommendations made were in his former financial adviser’s best interests while detrimental to him.