SEC Headlines: Regulator Settles Private Equity Fund Fraud Case for $6.8M, Accuses R.T. Jones of Not implementing Cybersecurity Measures, and Files A Securities Case Over Stock Manipulation

Men Accused of $6.8M Private Equity Fund Fraud Allegedly Bilked Friends and Family
The Securities and Exchange Commission has settled charges with two men and their unregistered investment advisory firm for allegedly bilking investors in a private equity fund. Under the agreement, William B. Fretz, John P. Freeman, and their Covenant Capital Management Partners, L.P. will owe the regulator about $6.8 million. Any money collected will go to investors that were defrauded.

According to the SEC order instituting administrative proceedings over the alleged private equity fund fraud, the two men, their firm, and Covenant Partners, L.P., which is the fund they managed, sold partnership interests in the fund to friends and family. However, instead of investing the money, they used the cash for themselves and their other business.

Fritz and Freeman are accused of taking more than $1 million and placing it with their brokerage firm, Keystone Equities Group L.P., which was failing. They also purportedly paid close to $600,000 in performance fees they didn’t make and used assets from the fund to pay back personal obligations.

Freeman, Fretz, and CCMP consented to settle charges accusing them of willfully violating federal securities laws and SEC anti-fraud laws. However, they are not denying or admitting to the SEC fraud charges.

Investment Adviser R.T. Jones Capital Settles SEC Charges Related to Cybersecurity
R.T. Jones Capital Equities Management has settled SEC charges accusing it of not putting into placed required cyber security procedures and policies prior to a breach that compromised the personal identifiable (PII) information of thousands of its clients. Without denying or admitting to the findings, the investment adviser agreed to pay a $75,000 penalty and consented to cease and desist from future violations of the Securities Act of 1933’s Rule 30(a) of Regulation S-P.

According to an SEC probe, R.T. Jones violated federal securities laws’ “safeguard rule.” The rule mandates that registered investment advisers put into place written procedures and policies that are designed in a manner reasonable enough that they protect customers’ information and records from security threats. The regulator said that for four years R.T. Jones did not adopt any such policies.

Per the SEC’s order, instead, R.T. Jones stored clients’ sensitive personally identifiable information on a third party hosted-server. When the firm’s server was attacked in 2013, customers’ PII were made vulnerable to theft. After discovering the breach, the firm hired a cybersecurity consulting firm and notified everyone who could have been affected.

SEC Files Stock Manipulation Case After Investors in Technology Company are Defrauded
Frank Morelli III and Louis Buonocore are now facing SEC charges over allegations that they bilked investors in YaFarm Technologies Inc. According to the complaint, the two men hid that they owned almost all of the technology company’s stock and controlled its operations. They also are accused of paying stock promoters to promote YaFarm as a legitimate business.

The regulator says that because of their promotion campaign, Buonocore and Morelli made money, selling their stock for over $1.2 million. According to SEC Director Paul G. Levenson, the two men had engaged in a scam that involved masking their role in the company, their control of YaFarm’s shares, and misleading the public.

Morelli and Buonocore have been charged with violating federal securities laws’ antifraud provision and they’ve consented to partial settlements. Meantime, The U.S. Attorney’s Office for the District of Massachusetts has filed a criminal case against Buonocore.

Our securities lawyers are here to help investors recoup their losses from financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Read the SEC Order in the Case Against Freeman and Fretz (PDF)

SEC fines Clayton-based R.T. Jones after cyberattack, BizJournals.com, September 23, 2015

Read the SEC Complaint Against Buonocore and Morelli , SEC.gov, (PDF)

https://www.sec.gov/litigation/complaints/2015/comp-pr2015-199.pdf