Mispriced Funds and Elder Investor Fraud Lead to SEC Cases

State Street To Pay More Than $88M After Overcharging For Mutual Funds
State Street Bank and Trust Company will pay over $88M to resolve US Securities and Exchange Commission charges accusing it of overcharging investment advisory clients, including mutual funds, for expenses related to its custody of client assets. From 1998 to 2015, State Street allegedly collected $170M in overcharges involving out-of-pocket custodial costs that it paid on behalf of clients. While the clients had consented to pay for these costs, they did not agree to being overcharged for them.

Of the $170M in excessive charges, $110M was for a concealed markup added to the charge for transmitting financial messages via the Society of Worldwide Interbank Financial Telecommunication (SWIFT) network. As part of the settlement, State Street will pay almost $49M of disgorgement plus prejudgment interest and a $40M penalty.

NJ Portfolio Manager Accused of Profiting from Mispriced Funds
Swapnil Rege, a trader and portfolio manager based in New Jersey, has settled SEC charges accusing him of mispricing private fund investments. The mispricing earned him $600K in “excess compensation” while the fund was charged “excess management fees.”

According to the SEC’s order, the alleged mispricing took place between 6/2016 to 4/2017 while Rege was the adviser to the fund. He allegedly manipulated the inputs he employed for valuing swap options and interest rates. This made it seem as if the fund’s investments were profitable while artificially raising the supposed returns.

The fund adviser has since fired Rege, paid back the excess fees, and liquidated the fund. As part of the SEC settlement, the former portfolio manager and trader will pay $600K of disgorgement and ill-gotten gains, prejudgment interest, and a $100K civil penalty.

Meantime, the US Commodity Futures Trading Commission has arrived at a separate settlement with Rege over the same misconduct. He will pay a $100K penalty in the CFTC’s case.

Elder Investor Fraud Case Alleges Pump and Dump Scam
The SEC has filed fraud charges against two men accusing them of operating a pump and dump scam that allegedly defrauded older retail investors. The regulator is accusing Garrett O’Rourke and Michael J. Black of fraudulently selling microcap stock to investors, including older investors, through stock promotion campaigns that engaged in unsolicited cold calls and used pressure sales tactics.

O’Rourke allegedly lied to prospective investors during the calls about the microcap companies’ prospects and his supposed ties with financial institutions. He also is accused of claiming to investors that he was taking their best interests into account when, in actuality, he and Black wanted them to buy the microcap stock so they could sell their holdings in the same stocks and make money. The two men allegedly concealed the fact that they controlled at least one of the companies so that they could illegally sell the stock and make millions of dollars. They purportedly tried to hide their misconduct by using a fake name and trading platforms located abroad.

Now, the SEC has put a freeze on the assets of both Black and O’Rourke. The regulator wants permanent injunctions, ill-gotten gains plus prejudgment interest, and penny stock bars. Meantime, prosecutors have brought a parallel criminal case against O’Rourke.

Investor Fraud Lawyers
Please contact Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) if you would like one of our investment fraud attorneys to help you explore your legal options. We have helped thousands of investors in recouping their fraud losses.