FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23243 / April 16, 2015
Securities and Exchange Commission v. Daniel P. McKelvey, et al., Civil Action No. 9:15-cv-80496 (S.D. Fla., filed April 16, 2015)
The Securities and Exchange Commission announced fraud charges against 10 individuals involved in a scheme to offer and sell penny stock in undisclosed "blank check" companies bound for reverse mergers while misrepresenting to the public that they were promising startups with business plans.
Blank check companies generally have no operations and no value other than their status as a registered entity, which makes them attractive targets for unscrupulous individuals seeking reverse mergers with clean shells ripe for pump-and-dump schemes. The federal securities laws impose various requirements on blank check companies to prevent such illicit use. The SEC alleges that Daniel P. McKelvey of Foster City, Calif., Alvin S. Mirman of Sarasota, Fla., and Steven Sanders of Lake Worth, Fla., routinely evaded these requirements by creating undisclosed blank check companies and installing figurehead company officers while falsely depicting in registration statements and other SEC filings that the companies were pursuing real business ventures under these officers. Allegedly concealed from the public was the fact that the companies were controlled at all times by McKelvey, Mirman, or Sanders for the sole purpose of entering into reverse mergers with unidentified companies so they could profit from the sales.
According to the SEC's complaint filed in U.S. District Court for the Southern District of Florida, McKelvey, Mirman, and Sanders collectively developed nearly two dozen undisclosed blank check companies and sold most of them for a total of approximately $6 million in ill-gotten gains. They were thwarted from further sales when the SEC instituted stop order proceedings last year that led to the suspension of the registration statements of four issuers before they could be further packaged for sale. The scheme allegedly involved forging or falsifying hundreds of certifications filed with the companies' SEC filings as well as communications from impersonating e-mail accounts, management representation letters to accountants, notarizations on applications to the Financial Industry Regulatory Authority, and securities purchase agreements used in the sales of the undisclosed blank check companies.
The SEC's complaint alleges that Steven Sanders's brother Edward G. Sanders of Coral Springs, Fla., Scott F. Hughes of Duluth, Ga., and Jeffrey L. Lamson of El Dorado Hills, Calif. assisted the scheme by acting as corporate nominees with knowledge of the false business plans, drafting or providing false business plans, or recruiting other nominee officers.
The SEC's complaint charges McKelvey, Mirman, Steven Sanders, Hughes, Lamson, and Edward Sanders with violating or aiding and abetting violations of the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions as well as officer-and-director bars and penny stock bars.
The SEC's complaint also names four relief defendants for the purpose of recovering illicit proceeds of the scheme in their possession: Mirman's wife Ilene P. Mirman, a company managed by McKelvey called Forte Capital Partners LLC, and two companies managed by Steven Sanders named AU Consulting LLC and MBN Consulting LLC.
The SEC additionally charged four other figurehead officers and directors who agreed to settle their cases in separate administrative proceedings: Edward T. Farmer of Sarasota, Fla., William J. Gaffney of Cumming, Ga., Kevin D. Miller of Alpharetta, Ga., and Ronald A. Warren of Peachtree Corners, Ga. They consented to SEC orders without admitting or denying the findings that they violated the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws. They are barred from serving as an officer or director of a public company and from participating in penny stock offerings, and they must disgorge ill-gotten gains plus prejudgment interest.
The SEC's investigation, which is continuing, is being conducted by Jeffrey T. Cook in the Miami Regional Office as part of the Microcap Fraud Task Force. The case is being supervised by Eric R. Busto, and the SEC's litigation will be led by Patrick R. Costello.
Showing posts with label MISREPRESENTATIONS. Show all posts
Showing posts with label MISREPRESENTATIONS. Show all posts
Wednesday, April 29, 2015
Monday, November 17, 2014
FTC, FLORIDA AG SETTLEMENT STOPS ROBOCALL OPERATION THAT PUSHED SALES OF MEDICAL ALERT DEVICES TO SENIORS
FROM: U.S. JUSTICE DEPARTMENT
Settlement with the FTC and Florida Attorney General Stops Operations that Used Robocalls to Fraudulently Pitch Medical Alert Devices to Seniors
A settlement obtained by the Federal Trade Commission and the Office of the Florida Attorney General permanently shuts down an Orlando-based operation that bilked seniors by using pre-recorded robocalls to sell them supposedly free medical alert systems.
The settlement order bans the defendants from making robocalls, prohibits other telemarketing activities, and bars them from making misrepresentations related to the sale of any product or service. The order includes a judgment of nearly $23 million, most of which will be suspended after the defendants surrender assets including cash, cars, and a boat.
”This case is a great example of how federal and state law enforcement can work together to stop fraudulent telemarketing targeting older consumers,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “The FTC will continue to work with its state partners to protect senior citizens from pernicious schemes like this one.”
“We must do everything within our power to protect Florida’s consumers. The scheme we have stopped allegedly targeted Florida’s senior citizens, and we, along with our Federal Trade Commission partners, have held these individuals accountable,” said Attorney General Pam Bondi.
According to the joint agency complaint, announced in January, the defendants violated the FTC Act, the Commission’s Telemarketing Sales Rule (TSR), and Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA) by blasting robocalls to senior citizens falsely stating that they were eligible to receive a free medical alert system that was bought for them by a friend, family member, or acquaintance. Many of the consumers who received the defendants’ calls were elderly, live alone, and have limited or fixed incomes.
Consumers who pressed one (1) on their phones for more information were transferred to a live representative who continued the deception by falsely saying that their medical alert systems are recommended by the American Heart Association, the American Diabetes Association, and the National Institute on Aging. In addition, the telemarketers falsely said that the $34.95 monthly monitoring fee would be charged only after the system has been installed and activated. In reality, consumers were charged immediately, regardless of whether the system was activated or not.
The court order settling the agencies’ charges also imposes a judgment of $22,989,609, the total amount consumers paid for monthly monitoring services for their medical alert devices. The judgment will be suspended as to all of the settling defendants once the individual defendants turn over cash and other assets valued at about $79,000, including $24,000 that was transferred in violation of a court-ordered asset freeze.
Assets that will be sold include a 2008 BMW, a 1984 Hans Christian sailboat, a 2004 Mercedes, and a 2008 Lincoln Navigator. In addition, defendant Joseph Settecase is subject to a second judgment of $39,300, which will not be suspended. This judgment reflects the funds that Settecase retained after selling his Ferrari in violation of the asset freeze and transferring a portion of the proceeds to another defendant.
The defendants subject to the settlement include: 1) Worldwide Info Services, Inc., also doing business as (d/b/a) The Credit Voice; 2) Elite Information Solutions Inc., also d/b/a The Credit Voice; 3) Absolute Solutions Group Inc., also d/b/a The Credit Voice; 4) Global Interactive Technologies, Inc., also d/b/a The Credit Voice Inc.; 5) Global Service Providers, Inc.; 6) Arcagen, Inc., also d/b/a ARI; 7) American Innovative Concepts, Inc.; 8) Unique Information Services Inc.; 9) National Life Network, Inc., and their principals 10) Michael Hilgar; 11) Gary Martin; 12) Joseph Settecase; and 13) Yuluisa Nieves.
One defendant, Live Agent Response 1 LLC, also d/b/a LAR, has not settled, and the FTC and Florida AG are seeking a default judgment against it. In May, the parties stipulated to the dismissal of The Credit Voice, Inc. as a defendant.
The FTC and Florida Attorney General’s Office appreciate the assistance of the following agencies, offices, and organizations in helping to investigate and bring this case: 1) the Indiana Office of the Attorney General; 2) the Minnesota Office of the Attorney General; 3) the Florida Department of Agriculture and Consumer Services; 4) the Better Business Bureau Serving Eastern Missouri and Southern Illinois; 5) the American Heart Association; 6) the American Diabetes Association; 7) the National Institute on Aging; 8) the United States Postal Inspection Service, including its Atlanta, Boston, and Houston divisions; and 9) the Seminole County Sheriff’s Office, Financial Crimes Task Force.
Settlement with the FTC and Florida Attorney General Stops Operations that Used Robocalls to Fraudulently Pitch Medical Alert Devices to Seniors
A settlement obtained by the Federal Trade Commission and the Office of the Florida Attorney General permanently shuts down an Orlando-based operation that bilked seniors by using pre-recorded robocalls to sell them supposedly free medical alert systems.
The settlement order bans the defendants from making robocalls, prohibits other telemarketing activities, and bars them from making misrepresentations related to the sale of any product or service. The order includes a judgment of nearly $23 million, most of which will be suspended after the defendants surrender assets including cash, cars, and a boat.
”This case is a great example of how federal and state law enforcement can work together to stop fraudulent telemarketing targeting older consumers,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “The FTC will continue to work with its state partners to protect senior citizens from pernicious schemes like this one.”
“We must do everything within our power to protect Florida’s consumers. The scheme we have stopped allegedly targeted Florida’s senior citizens, and we, along with our Federal Trade Commission partners, have held these individuals accountable,” said Attorney General Pam Bondi.
According to the joint agency complaint, announced in January, the defendants violated the FTC Act, the Commission’s Telemarketing Sales Rule (TSR), and Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA) by blasting robocalls to senior citizens falsely stating that they were eligible to receive a free medical alert system that was bought for them by a friend, family member, or acquaintance. Many of the consumers who received the defendants’ calls were elderly, live alone, and have limited or fixed incomes.
Consumers who pressed one (1) on their phones for more information were transferred to a live representative who continued the deception by falsely saying that their medical alert systems are recommended by the American Heart Association, the American Diabetes Association, and the National Institute on Aging. In addition, the telemarketers falsely said that the $34.95 monthly monitoring fee would be charged only after the system has been installed and activated. In reality, consumers were charged immediately, regardless of whether the system was activated or not.
The court order settling the agencies’ charges also imposes a judgment of $22,989,609, the total amount consumers paid for monthly monitoring services for their medical alert devices. The judgment will be suspended as to all of the settling defendants once the individual defendants turn over cash and other assets valued at about $79,000, including $24,000 that was transferred in violation of a court-ordered asset freeze.
Assets that will be sold include a 2008 BMW, a 1984 Hans Christian sailboat, a 2004 Mercedes, and a 2008 Lincoln Navigator. In addition, defendant Joseph Settecase is subject to a second judgment of $39,300, which will not be suspended. This judgment reflects the funds that Settecase retained after selling his Ferrari in violation of the asset freeze and transferring a portion of the proceeds to another defendant.
The defendants subject to the settlement include: 1) Worldwide Info Services, Inc., also doing business as (d/b/a) The Credit Voice; 2) Elite Information Solutions Inc., also d/b/a The Credit Voice; 3) Absolute Solutions Group Inc., also d/b/a The Credit Voice; 4) Global Interactive Technologies, Inc., also d/b/a The Credit Voice Inc.; 5) Global Service Providers, Inc.; 6) Arcagen, Inc., also d/b/a ARI; 7) American Innovative Concepts, Inc.; 8) Unique Information Services Inc.; 9) National Life Network, Inc., and their principals 10) Michael Hilgar; 11) Gary Martin; 12) Joseph Settecase; and 13) Yuluisa Nieves.
One defendant, Live Agent Response 1 LLC, also d/b/a LAR, has not settled, and the FTC and Florida AG are seeking a default judgment against it. In May, the parties stipulated to the dismissal of The Credit Voice, Inc. as a defendant.
The FTC and Florida Attorney General’s Office appreciate the assistance of the following agencies, offices, and organizations in helping to investigate and bring this case: 1) the Indiana Office of the Attorney General; 2) the Minnesota Office of the Attorney General; 3) the Florida Department of Agriculture and Consumer Services; 4) the Better Business Bureau Serving Eastern Missouri and Southern Illinois; 5) the American Heart Association; 6) the American Diabetes Association; 7) the National Institute on Aging; 8) the United States Postal Inspection Service, including its Atlanta, Boston, and Houston divisions; and 9) the Seminole County Sheriff’s Office, Financial Crimes Task Force.
Saturday, September 20, 2014
$1.79 MILLION IN THE MAIL TO CONSUMERS ALLEGEDLY DEFRAUDED BY AMERIDEBT
FROM: U.S. FEDERAL TRADE COMMISSION
FTC Sends More Than $1.79 Million in Refunds to Consumers Defrauded by AmeriDebt Scam
The FTC previously returned about $15 million to AmeriDebt consumers. Consumers affected in today’s announcement will receive checks for between $12.70 and $725.10; the amount will vary based upon the amount of each consumer’s loss, less the previous refund received. Those who receive checks from the FTC’s refund administrator should cash them within 60 days of the mailing date. The FTC never requires consumers to pay money or to provide information before refund checks can be cashed.
Saturday, February 1, 2014
COURT IMPOSES $14.75 MILLION JUDGMENT AGAINST TELEMARKETERS
FROM: FEDERAL TRADE COMMISSION
Court Finds Telemarketers in Contempt; Imposes $14.75 Million Judgment
FTC Continues Aggressive Enforcement to Ensure Compliance
At the request of the Federal Trade Commission, a U.S. district court judge in Florida has issued a contempt order against Bryon Wolf and Roy Eliasson, two key individuals who operated a deceptive marketing scheme since 2009. According to the order, the defendants violated a December 2008 permanent injunction and final order that barred them from making a range of misrepresentations to consumers, billing consumers without their authorization, and failing to make required disclosures in future business endeavors. The contempt order imposes a judgment of $14.75 million against the defendants, which is the amount they illegally took from consumers in their second scheme.
“This pair of defendants showed complete contempt, both for consumers and for a court order,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “And this action shows that if you violate an FTC order, you’ll pay for that violation. We put orders in place to protect consumers, and we make sure that companies follow them.”
Today’s announcement is the latest example of how the FTC protects American consumers from defendants who are recidivists. The agency monitors every FTC order for compliance, and quickly deals with those wrongdoers who defy its orders. In the last 12 months alone, the FTC successfully tried five contempt cases. The defendants in these actions face tens of millions of dollars in judgments and are banned from various commercial activities.
Case History
In 2007, the FTC sued Suntasia Marketing, Inc., charging the operation with deceptively marketing negative-option programs to consumers nationwide. The defendants allegedly defrauded consumers and charged their bank accounts without their consent for a variety of programs, including memberships in discount buyer’s and travel clubs.
In 2008, 14 defendants agreed to an order settling the FTC’s charges, and were required to pay more than $16 million to provide refunds to defrauded consumers. Bryon Wolf and Roy Eliasson were ordered to pay over $11 million for their role in the scheme, and were barred from a variety of unlawful acts in the future, including misrepresenting material facts regarding an offer, failing to clearly disclose material terms during a sale, and debiting consumers’ accounts without their consent.
But according to the FTC’s motion for contempt, within months of the 2008 order, Wolf and Eliasson devised a new plan to defraud consumers through Membership Services, LLC, a firm they controlled. In this scheme, they used deceptive phone and internet solicitations to target recent loan applicants and misled them into believing they would provide them with cash advances, loans, or lines of credit. Instead, the defendants debited the consumers’ accounts for membership in a continuity program. Very few consumers used the program, and many cancelled when they found out the defendants had debited their accounts and planned to take additional payments from them in future months.
Based on this conduct, following a two day evidentiary hearing, the court found that the defendants had violated the terms of a court-ordered permanent injunction by engaging in some of the same kinds of deceptive tactics that led to the FTC’s prior case against them.
According to the court, while the defendants sent messages to consumers communicating they had been “approved” for a loan, none of them ever received a loan. Instead, many of their bank accounts were debited $49.95 or more a month after they provided their financial information to the defendants.
Information for Businesses and Consumers
The FTC has developed two new blog posts to help provide businesses and consumers with information about specific types of telemarketing fraud and how to avoid it. They are called (Con)tempting Fate and An Online Payday Loan Or Window to a Scam?
The contempt order was entered by the court on January 13, 2014, in the U.S. District Court for the Middle District of Florida, Tampa Division.
Court Finds Telemarketers in Contempt; Imposes $14.75 Million Judgment
FTC Continues Aggressive Enforcement to Ensure Compliance
At the request of the Federal Trade Commission, a U.S. district court judge in Florida has issued a contempt order against Bryon Wolf and Roy Eliasson, two key individuals who operated a deceptive marketing scheme since 2009. According to the order, the defendants violated a December 2008 permanent injunction and final order that barred them from making a range of misrepresentations to consumers, billing consumers without their authorization, and failing to make required disclosures in future business endeavors. The contempt order imposes a judgment of $14.75 million against the defendants, which is the amount they illegally took from consumers in their second scheme.
“This pair of defendants showed complete contempt, both for consumers and for a court order,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “And this action shows that if you violate an FTC order, you’ll pay for that violation. We put orders in place to protect consumers, and we make sure that companies follow them.”
Today’s announcement is the latest example of how the FTC protects American consumers from defendants who are recidivists. The agency monitors every FTC order for compliance, and quickly deals with those wrongdoers who defy its orders. In the last 12 months alone, the FTC successfully tried five contempt cases. The defendants in these actions face tens of millions of dollars in judgments and are banned from various commercial activities.
Case History
In 2007, the FTC sued Suntasia Marketing, Inc., charging the operation with deceptively marketing negative-option programs to consumers nationwide. The defendants allegedly defrauded consumers and charged their bank accounts without their consent for a variety of programs, including memberships in discount buyer’s and travel clubs.
In 2008, 14 defendants agreed to an order settling the FTC’s charges, and were required to pay more than $16 million to provide refunds to defrauded consumers. Bryon Wolf and Roy Eliasson were ordered to pay over $11 million for their role in the scheme, and were barred from a variety of unlawful acts in the future, including misrepresenting material facts regarding an offer, failing to clearly disclose material terms during a sale, and debiting consumers’ accounts without their consent.
But according to the FTC’s motion for contempt, within months of the 2008 order, Wolf and Eliasson devised a new plan to defraud consumers through Membership Services, LLC, a firm they controlled. In this scheme, they used deceptive phone and internet solicitations to target recent loan applicants and misled them into believing they would provide them with cash advances, loans, or lines of credit. Instead, the defendants debited the consumers’ accounts for membership in a continuity program. Very few consumers used the program, and many cancelled when they found out the defendants had debited their accounts and planned to take additional payments from them in future months.
Based on this conduct, following a two day evidentiary hearing, the court found that the defendants had violated the terms of a court-ordered permanent injunction by engaging in some of the same kinds of deceptive tactics that led to the FTC’s prior case against them.
According to the court, while the defendants sent messages to consumers communicating they had been “approved” for a loan, none of them ever received a loan. Instead, many of their bank accounts were debited $49.95 or more a month after they provided their financial information to the defendants.
Information for Businesses and Consumers
The FTC has developed two new blog posts to help provide businesses and consumers with information about specific types of telemarketing fraud and how to avoid it. They are called (Con)tempting Fate and An Online Payday Loan Or Window to a Scam?
The contempt order was entered by the court on January 13, 2014, in the U.S. District Court for the Middle District of Florida, Tampa Division.
Thursday, December 19, 2013
SEC CHARGES TWO COMPANIES WITH FRAUDULENT OFFER AND SALE OF SECURITIES IN ENERGY VENTURES
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Texas Oil and Gas Promoters for Securities Fraud
On December 12, 2013, the Securities and Exchange Commission charged Leon Ali Parvizian and his two companies, Arcturus Corporation and Aschere Energy LLC, with the fraudulent offer and sale of securities in the form of interests in oil and gas joint ventures. The Commission also charged promoters Alfredo Gonzalez, AMG Energy, LLC , Robert Balunas, and R. Thomas & Co., LLC with violations of the securities offering and broker-dealer registration provisions of the federal securities laws.
Filed in the United States District Court for the Northern District of Texas, the Commission's complaint alleges that the Parvizian, through Arcturus and Aschere, raised nearly $22 million from at least 380 investors between 2007 and December 2011.The complaint alleges that Parvizian prepared and disseminated to prospective investors offering materials that included material misrepresentations and omissions regarding, among other things, material litigation involving Arcturus and Aschere. According to the complaint, Parvizian, Arcturus and Aschere systematically, and without disclosure to investors, used the offering proceeds to pay the costs of defending and settling the litigation. The complaint further alleges that, among other things, Parvizian prematurely called for completion funds on at least two projects before he had finished drilling and testing the wells because he had already spent the offering proceeds for non-JV related expenses, including legal fees. According to the complaint, Parvizian, Arcturus, and Aschere spent only $7.9 million, or 36 percent, of the money raised to drill oil and gas wells.
The complaint also alleges that the defendants offered and sold the joint venture interests in unregistered securities offerings that were not exempt from the registration requirements of the federal securities laws. In addition, the complaint alleges that Parvizian, Gonzalez, AMG, Balunas, and R. Thomas & Co. acted as unregistered broker-dealers. According to the complaint, Parvizian, Gonzalez, Balunas, AMG Energy, and R. Thomas received transaction-based compensation in the form of sales commissions based upon a percentage of the amount of investor funds raised.
The complaint alleges that Parvizian, Arcturus, and Aschere violated Sections 5(a) and 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act")and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder and that Parvizian also violated Section 15(a) of the Exchange Act. Gonzalez, AMG, Balunas, and R. Thomas are charged with violating Section 5(a) and 5(c) of the Securities Act and with Section 15(a) of the Exchange Act. The Commission is seeking permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against each of the defendants.
The SEC's investigation was conducted by Ronda Blair, Ty Martinez, and Barbara Gunn of SEC's Fort Worth Regional Office. The SEC acknowledges the assistance of the Financial Industry Regulatory Authority and the Texas State Securities Board.
SEC Charges Texas Oil and Gas Promoters for Securities Fraud
On December 12, 2013, the Securities and Exchange Commission charged Leon Ali Parvizian and his two companies, Arcturus Corporation and Aschere Energy LLC, with the fraudulent offer and sale of securities in the form of interests in oil and gas joint ventures. The Commission also charged promoters Alfredo Gonzalez, AMG Energy, LLC , Robert Balunas, and R. Thomas & Co., LLC with violations of the securities offering and broker-dealer registration provisions of the federal securities laws.
Filed in the United States District Court for the Northern District of Texas, the Commission's complaint alleges that the Parvizian, through Arcturus and Aschere, raised nearly $22 million from at least 380 investors between 2007 and December 2011.The complaint alleges that Parvizian prepared and disseminated to prospective investors offering materials that included material misrepresentations and omissions regarding, among other things, material litigation involving Arcturus and Aschere. According to the complaint, Parvizian, Arcturus and Aschere systematically, and without disclosure to investors, used the offering proceeds to pay the costs of defending and settling the litigation. The complaint further alleges that, among other things, Parvizian prematurely called for completion funds on at least two projects before he had finished drilling and testing the wells because he had already spent the offering proceeds for non-JV related expenses, including legal fees. According to the complaint, Parvizian, Arcturus, and Aschere spent only $7.9 million, or 36 percent, of the money raised to drill oil and gas wells.
The complaint also alleges that the defendants offered and sold the joint venture interests in unregistered securities offerings that were not exempt from the registration requirements of the federal securities laws. In addition, the complaint alleges that Parvizian, Gonzalez, AMG, Balunas, and R. Thomas & Co. acted as unregistered broker-dealers. According to the complaint, Parvizian, Gonzalez, Balunas, AMG Energy, and R. Thomas received transaction-based compensation in the form of sales commissions based upon a percentage of the amount of investor funds raised.
The complaint alleges that Parvizian, Arcturus, and Aschere violated Sections 5(a) and 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act")and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder and that Parvizian also violated Section 15(a) of the Exchange Act. Gonzalez, AMG, Balunas, and R. Thomas are charged with violating Section 5(a) and 5(c) of the Securities Act and with Section 15(a) of the Exchange Act. The Commission is seeking permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against each of the defendants.
The SEC's investigation was conducted by Ronda Blair, Ty Martinez, and Barbara Gunn of SEC's Fort Worth Regional Office. The SEC acknowledges the assistance of the Financial Industry Regulatory Authority and the Texas State Securities Board.
Friday, September 27, 2013
SEC CHARGES 10 BROKERS IN $125 MILLION INVESTMENT SCHEME
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today announced charges against 10 former brokers at an Albany, N.Y.-based firm at the center of a $125 million investment scheme for which the co-owners have received jail sentences.
The SEC filed an emergency action in 2010 to halt the scheme at McGinn Smith & Co. and freeze the assets of the firm and its owners Timothy M. McGinn and David L. Smith, who were later charged criminally by the U.S. Attorney’s Office for the Northern District of New York and found guilty.
The SEC’s Enforcement Division alleges that 10 brokers who recommended the unregistered investment products involved in the scheme made material misrepresentations and omissions to their customers. The registered representatives ignored red flags that should have led them to conduct more due diligence into the securities they were recommending to their customers.
“As securities professionals, these brokers had an important duty to determine whether the securities they recommended to customers were suitable, especially when red flags were apparent. These registered representatives performed inadequate due diligence and failed to fulfill their duties,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
The SEC’s order names 10 former McGinn Smith brokers in the administrative proceeding:
Donald J. Anthony, Jr. of Loudonville, N.Y.
Frank H. Chiappone of Clifton Park, NY.
Richard D. Feldmann of Delmar, N.Y.
William P. Gamello of Rexford, N.Y.
Andrew G. Guzzetti of Saratoga Springs, N.Y.
William F. Lex of Phoenixville, Pa.
Thomas E. Livingston of Slingerlands, N.Y.
Brian T. Mayer of Princeton, N.J.
Philip S. Rabinovich of Roslyn, N.Y.
Ryan C. Rogers of East Northport, N.Y.
According to the SEC’s order, the scheme victimized approximately 750 investors and led to $80 million in investor losses. Guzzetti was the managing director of McGinn Smith’s private client group from 2004 to 2009, and he supervised brokers who recommended the firm’s offerings. The SEC’s Enforcement Division alleges that despite his knowledge of serious red flags, Guzzetti failed to take any action to investigate the offerings and instead encouraged the brokers to sell the notes to McGinn Smith customers.
The SEC’s Enforcement Division alleges that the other nine brokers charged in the administrative proceeding should have conducted a searching inquiry prior to recommending the products to their customers. The brokers continued to sell McGinn Smith notes even after being told that customers placed in some of the firm’s offerings could only be redeemed if a replacement customer was found. This was contrary to the offering documents. In January 2008, the brokers learned that four earlier offerings that raised almost $90 million had defaulted, yet they failed to conduct any inquiry into subsequent offerings and continued to recommend McGinn Smith notes.
The SEC’s order alleges that the misconduct of Anthony, Chiappone, Feldmann, Gamello, Lex, Livingston, Mayer, Rabinovich, and Rogers resulted in violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The order alleges that Guzzetti failed to reasonably supervise the nine brokers, giving rise to liability under Section 15(b)(6) of the Exchange Act, incorporating by reference Section 15(b)(4).
The SEC’s civil case continues against the firm as well as McGinn and Smith, who were sentenced to 15 and 10 years imprisonment respectively in the criminal case.
The SEC’s investigation was conducted by David Stoelting, Kevin P. McGrath, Lara Shalov Mehraban, Haimavathi V. Marlier, Joshua Newville, Kerri Palen, Michael Paley, and Roseann Daniello of the New York office. Mr. Stoelting, Ms. Marlier and Michael Birnbaum will lead the Enforcement Division’s litigation.
The Securities and Exchange Commission today announced charges against 10 former brokers at an Albany, N.Y.-based firm at the center of a $125 million investment scheme for which the co-owners have received jail sentences.
The SEC filed an emergency action in 2010 to halt the scheme at McGinn Smith & Co. and freeze the assets of the firm and its owners Timothy M. McGinn and David L. Smith, who were later charged criminally by the U.S. Attorney’s Office for the Northern District of New York and found guilty.
The SEC’s Enforcement Division alleges that 10 brokers who recommended the unregistered investment products involved in the scheme made material misrepresentations and omissions to their customers. The registered representatives ignored red flags that should have led them to conduct more due diligence into the securities they were recommending to their customers.
“As securities professionals, these brokers had an important duty to determine whether the securities they recommended to customers were suitable, especially when red flags were apparent. These registered representatives performed inadequate due diligence and failed to fulfill their duties,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
The SEC’s order names 10 former McGinn Smith brokers in the administrative proceeding:
Donald J. Anthony, Jr. of Loudonville, N.Y.
Frank H. Chiappone of Clifton Park, NY.
Richard D. Feldmann of Delmar, N.Y.
William P. Gamello of Rexford, N.Y.
Andrew G. Guzzetti of Saratoga Springs, N.Y.
William F. Lex of Phoenixville, Pa.
Thomas E. Livingston of Slingerlands, N.Y.
Brian T. Mayer of Princeton, N.J.
Philip S. Rabinovich of Roslyn, N.Y.
Ryan C. Rogers of East Northport, N.Y.
According to the SEC’s order, the scheme victimized approximately 750 investors and led to $80 million in investor losses. Guzzetti was the managing director of McGinn Smith’s private client group from 2004 to 2009, and he supervised brokers who recommended the firm’s offerings. The SEC’s Enforcement Division alleges that despite his knowledge of serious red flags, Guzzetti failed to take any action to investigate the offerings and instead encouraged the brokers to sell the notes to McGinn Smith customers.
The SEC’s Enforcement Division alleges that the other nine brokers charged in the administrative proceeding should have conducted a searching inquiry prior to recommending the products to their customers. The brokers continued to sell McGinn Smith notes even after being told that customers placed in some of the firm’s offerings could only be redeemed if a replacement customer was found. This was contrary to the offering documents. In January 2008, the brokers learned that four earlier offerings that raised almost $90 million had defaulted, yet they failed to conduct any inquiry into subsequent offerings and continued to recommend McGinn Smith notes.
The SEC’s order alleges that the misconduct of Anthony, Chiappone, Feldmann, Gamello, Lex, Livingston, Mayer, Rabinovich, and Rogers resulted in violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The order alleges that Guzzetti failed to reasonably supervise the nine brokers, giving rise to liability under Section 15(b)(6) of the Exchange Act, incorporating by reference Section 15(b)(4).
The SEC’s civil case continues against the firm as well as McGinn and Smith, who were sentenced to 15 and 10 years imprisonment respectively in the criminal case.
The SEC’s investigation was conducted by David Stoelting, Kevin P. McGrath, Lara Shalov Mehraban, Haimavathi V. Marlier, Joshua Newville, Kerri Palen, Michael Paley, and Roseann Daniello of the New York office. Mr. Stoelting, Ms. Marlier and Michael Birnbaum will lead the Enforcement Division’s litigation.
Sunday, August 25, 2013
SEC CHARGES INVESTMENT ADVISER IN ALGORITHMIC TRADING ABILITY CASE
FROM: SECURITIES AND EXCHANGE COMMISSION
SEC Charges North Carolina-Based Investment Adviser for Misleading Fund Board About Algorithmic Trading Ability
08/21/2013 10:43 AM EDT
The Securities and Exchange Commission today announced charges against a North Carolina-based investment adviser and its former owner for misleading an investment fund’s board of directors about the firm’s ability to conduct algorithmic currency trading so they would approve the firm’s contract to manage the fund.
The SEC’s Enforcement Division alleges that Chariot Advisors LLC and Elliott L. Shifman misled the fund’s board about the nature, extent, and quality of services that the firm could provide as he touted the competitive benefits of algorithmic trading in two presentations before the board. Contrary to what Shifman told the directors, Chariot Advisors did not devise or otherwise possess any algorithms capable of engaging in the currency trading that Shifman was describing. After the fund was launched, Chariot Advisors did not use an algorithm model to perform the fund’s currency trading as represented to the board, but instead hired an individual trader who was allowed to use discretion on trade selection and execution. The misconduct by Shifman and Chariot Advisors caused misrepresentations and omissions in the Chariot fund’s registration statement and prospectus filed with the SEC and viewed by investors.
The case arises out of an initiative by the SEC Enforcement Division’s Asset Management Unit to focus on the “15(c) process” – a reference to Section 15(c) of the Investment Company Act of 1940 that requires a registered fund’s board to annually evaluate the fund’s advisory agreements. Advisers must provide the board with the truthful information necessary to make that evaluation. Other enforcement actions taken against misconduct in the investment contract renewal process and fee arrangements include cases against Morgan Stanley Investment Management, a sub-adviser to the Malaysia Fund, and two mutual fund trusts affiliated with the Northern Lights Variable Trust fund complex.
“It is critical that investment advisers provide truthful information to the directors of the registered funds they advise,” said Julie M. Riewe, Co-Chief of SEC Enforcement Division’s Asset Management Unit. “Both boards and advisers have fiduciary duties that must be fulfilled to ensure that a fund’s investors are not harmed.”
According to the SEC’s order instituting administrative proceedings, the false claims by Chariot and Shifman defrauded the Chariot Absolute Return Currency Portfolio, a fund that was formerly within the Northern Lights Variable Trust fund complex. In December 2008 and again in May 2009, Shifman misrepresented to the Chariot fund’s board that his firm would implement the fund’s investment strategy by using a portion of the fund’s assets to engage in algorithmic currency trading. Chariot fund’s initial investment objective was to achieve absolute positive returns in all market cycles by investing approximately 80 percent of the fund’s assets under management in short-term fixed income securities, and using the remaining 20 percent of the assets under management to engage in algorithmic currency trading.
According to the SEC’s order, Chariot Advisors did not have an algorithm capable of conducting such currency trading. The ability to conduct currency trading was particularly significant for the Chariot fund’s performance, because in the absence of an operating history the directors focused instead on Chariot Advisors’ reliance on models when the board evaluated the advisory contract. Even though Shifman believed that the fund’s currency trading needed to achieve a 25 to 30 percent return to succeed, Shifman never disclosed to the board that Chariot Advisors had no algorithm or model capable of achieving such a return.
According to the SEC’s order, because Chariot Advisors possessed no algorithm, currency trading for the fund was under the control of an individual trader who was not using an algorithm for at least the first two months after the fund’s launch. Shifman had interviewed the trader prior to her hiring and knew that she used a technical analysis, rules-based approach for trading that combined market indicators with her own intuition. The trader traded currencies for the fund until Sept. 30, 2009 when she was terminated due to poor trading performance. Subsequently, Chariot employed a third party who utilized an algorithm to conduct currency trading on behalf of the Chariot fund.
The SEC’s order alleges that the misconduct by Chariot and Shifman, who lives in the Raleigh area, resulted in violations of Sections 15(c) and 34(b) of the Investment Company Act of 1940 and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true and whether any remedial sanctions are appropriate.
The SEC’s investigation was led by Stephen E. Donahue and John G. Westrick of the Asset Management Unit and Atlanta Regional Office as well as Micheal D. Watson of the Atlanta office. Pat Huddleston and Shawn Murnahan will lead the Enforcement Division’s litigation. John Sherrick and Timothy J. Barker of the Atlanta Regional Office conducted the related examination that led to the investigation.
SEC Charges North Carolina-Based Investment Adviser for Misleading Fund Board About Algorithmic Trading Ability
08/21/2013 10:43 AM EDT
The Securities and Exchange Commission today announced charges against a North Carolina-based investment adviser and its former owner for misleading an investment fund’s board of directors about the firm’s ability to conduct algorithmic currency trading so they would approve the firm’s contract to manage the fund.
The SEC’s Enforcement Division alleges that Chariot Advisors LLC and Elliott L. Shifman misled the fund’s board about the nature, extent, and quality of services that the firm could provide as he touted the competitive benefits of algorithmic trading in two presentations before the board. Contrary to what Shifman told the directors, Chariot Advisors did not devise or otherwise possess any algorithms capable of engaging in the currency trading that Shifman was describing. After the fund was launched, Chariot Advisors did not use an algorithm model to perform the fund’s currency trading as represented to the board, but instead hired an individual trader who was allowed to use discretion on trade selection and execution. The misconduct by Shifman and Chariot Advisors caused misrepresentations and omissions in the Chariot fund’s registration statement and prospectus filed with the SEC and viewed by investors.
The case arises out of an initiative by the SEC Enforcement Division’s Asset Management Unit to focus on the “15(c) process” – a reference to Section 15(c) of the Investment Company Act of 1940 that requires a registered fund’s board to annually evaluate the fund’s advisory agreements. Advisers must provide the board with the truthful information necessary to make that evaluation. Other enforcement actions taken against misconduct in the investment contract renewal process and fee arrangements include cases against Morgan Stanley Investment Management, a sub-adviser to the Malaysia Fund, and two mutual fund trusts affiliated with the Northern Lights Variable Trust fund complex.
“It is critical that investment advisers provide truthful information to the directors of the registered funds they advise,” said Julie M. Riewe, Co-Chief of SEC Enforcement Division’s Asset Management Unit. “Both boards and advisers have fiduciary duties that must be fulfilled to ensure that a fund’s investors are not harmed.”
According to the SEC’s order instituting administrative proceedings, the false claims by Chariot and Shifman defrauded the Chariot Absolute Return Currency Portfolio, a fund that was formerly within the Northern Lights Variable Trust fund complex. In December 2008 and again in May 2009, Shifman misrepresented to the Chariot fund’s board that his firm would implement the fund’s investment strategy by using a portion of the fund’s assets to engage in algorithmic currency trading. Chariot fund’s initial investment objective was to achieve absolute positive returns in all market cycles by investing approximately 80 percent of the fund’s assets under management in short-term fixed income securities, and using the remaining 20 percent of the assets under management to engage in algorithmic currency trading.
According to the SEC’s order, Chariot Advisors did not have an algorithm capable of conducting such currency trading. The ability to conduct currency trading was particularly significant for the Chariot fund’s performance, because in the absence of an operating history the directors focused instead on Chariot Advisors’ reliance on models when the board evaluated the advisory contract. Even though Shifman believed that the fund’s currency trading needed to achieve a 25 to 30 percent return to succeed, Shifman never disclosed to the board that Chariot Advisors had no algorithm or model capable of achieving such a return.
According to the SEC’s order, because Chariot Advisors possessed no algorithm, currency trading for the fund was under the control of an individual trader who was not using an algorithm for at least the first two months after the fund’s launch. Shifman had interviewed the trader prior to her hiring and knew that she used a technical analysis, rules-based approach for trading that combined market indicators with her own intuition. The trader traded currencies for the fund until Sept. 30, 2009 when she was terminated due to poor trading performance. Subsequently, Chariot employed a third party who utilized an algorithm to conduct currency trading on behalf of the Chariot fund.
The SEC’s order alleges that the misconduct by Chariot and Shifman, who lives in the Raleigh area, resulted in violations of Sections 15(c) and 34(b) of the Investment Company Act of 1940 and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true and whether any remedial sanctions are appropriate.
The SEC’s investigation was led by Stephen E. Donahue and John G. Westrick of the Asset Management Unit and Atlanta Regional Office as well as Micheal D. Watson of the Atlanta office. Pat Huddleston and Shawn Murnahan will lead the Enforcement Division’s litigation. John Sherrick and Timothy J. Barker of the Atlanta Regional Office conducted the related examination that led to the investigation.
Tuesday, December 18, 2012
CDOs AND MISREPRESENTATION
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Dec. 17, 2012 — The Securities and Exchange Commission today charged a Connecticut-based investment adviser with falsely stating to clients that it was co-investing alongside them in two collateralized debt obligations (CDO).
The SEC’s investigation found that Aladdin Capital Management’s co-investment representation was a key feature and selling point for its Multiple Asset Securitized Tranche (MAST) advisory program involving CDOs and collateralized loan obligations (CLOs). For example, Aladdin Capital Management asked in one marketing piece, "Why is an investor better off just investing in Aladdin sponsored CLOs and CDOs?" It then emphasized that the "most powerful response I can give to your question is that Aladdin co-invests alongside MAST investors in every program. Putting meaningful ‘skin in the game’ as we do means our financial interests are aligned with those of our MAST investors." Aladdin Capital Management in fact made no such investments in either CDO, and its affiliated broker-dealer Aladdin Capital collected placement fees from the CDO underwriters.
Aladdin Capital Management and Aladdin Capital agreed to pay more than $1.6 million combined to settle the SEC’s charges. One of the firms’ former executives Joseph Schlim agreed to pay a $50,000 penalty to settle charges against him for his role in the misrepresentations.
"If you sell an investment with the pitch that you are co-investing and have ‘skin in the game,’ then you better actually have ‘skin in the game,’" said Robert Khuzami, Director of the SEC’s Enforcement Division. "Such a representation by an investment adviser or broker-dealer is an important consideration to investors in complex products."
Kenneth Lench, Chief of the SEC Enforcement Division’s Structured and New Products Unit, added, "Aladdin marketed these CDOs via the co-investment representation, but then did not take steps to ensure that the representation was accurate. This action demonstrates our continuing commitment to holding market participants, including individuals, responsible for their misconduct leading up to the financial crisis."
According to the SEC’s orders instituting settled administrative proceedings, Aladdin Capital Management’s clients committed to investing in upcoming CDO deals that would be managed by the firm. Aladdin Capital Management inaccurately informed a municipal retirement plan, a pension plan, and an individual entrepreneur that it would co-invest alongside them. After those three clients invested in the two CDOs, Aladdin Management erroneously continued to inform clients from 2007 to 2010 that the firm had skin in the game.
According to the SEC’s order against Schlim, he was significantly involved in the MAST program on a day-to-day basis. He made sales calls to potential clients and negotiated with CDO and CLO underwriters about the amount of equity in those securities that Aladdin Capital could place with customers or purchase for itself. Schlim also negotiated the placement fees to be received by Aladdin Capital for securing MAST investments in equity tranches of each CDO or CLO.
The SEC found that Schlim knew that Aladdin used the co-investment representation as a significant marketing feature in its pitches to clients, but he failed to take any action to ensure that such representations were accurate when they were made. As the CFO of Aladdin, Schlim was responsible for reserving funds for Aladdin to co-invest alongside its MAST clients, yet he failed to ensure that funds were reserved or allocated for any co-investments alongside clients in either CDO.
Aladdin Capital Management and Schlim agreed to cease-and-desist orders without admitting or denying the SEC’s allegations. The Aladdin entities agreed to jointly pay $900,000 in disgorgement, $268,831 in prejudgment interest, and a $450,000 penalty. Schlim agreed to pay a $50,000 penalty.
The SEC’s investigation was conducted by James Goldman, Neil Smith, Kathleen Shields, and Kenneth Leung in the SEC’s Boston Regional Office. Mr. Goldman is a member of the Structured and New Products Unit. Mr. Leung participated in a related SEC examination of Aladdin Capital Management.
Washington, D.C., Dec. 17, 2012 — The Securities and Exchange Commission today charged a Connecticut-based investment adviser with falsely stating to clients that it was co-investing alongside them in two collateralized debt obligations (CDO).
The SEC’s investigation found that Aladdin Capital Management’s co-investment representation was a key feature and selling point for its Multiple Asset Securitized Tranche (MAST) advisory program involving CDOs and collateralized loan obligations (CLOs). For example, Aladdin Capital Management asked in one marketing piece, "Why is an investor better off just investing in Aladdin sponsored CLOs and CDOs?" It then emphasized that the "most powerful response I can give to your question is that Aladdin co-invests alongside MAST investors in every program. Putting meaningful ‘skin in the game’ as we do means our financial interests are aligned with those of our MAST investors." Aladdin Capital Management in fact made no such investments in either CDO, and its affiliated broker-dealer Aladdin Capital collected placement fees from the CDO underwriters.
Aladdin Capital Management and Aladdin Capital agreed to pay more than $1.6 million combined to settle the SEC’s charges. One of the firms’ former executives Joseph Schlim agreed to pay a $50,000 penalty to settle charges against him for his role in the misrepresentations.
"If you sell an investment with the pitch that you are co-investing and have ‘skin in the game,’ then you better actually have ‘skin in the game,’" said Robert Khuzami, Director of the SEC’s Enforcement Division. "Such a representation by an investment adviser or broker-dealer is an important consideration to investors in complex products."
Kenneth Lench, Chief of the SEC Enforcement Division’s Structured and New Products Unit, added, "Aladdin marketed these CDOs via the co-investment representation, but then did not take steps to ensure that the representation was accurate. This action demonstrates our continuing commitment to holding market participants, including individuals, responsible for their misconduct leading up to the financial crisis."
According to the SEC’s orders instituting settled administrative proceedings, Aladdin Capital Management’s clients committed to investing in upcoming CDO deals that would be managed by the firm. Aladdin Capital Management inaccurately informed a municipal retirement plan, a pension plan, and an individual entrepreneur that it would co-invest alongside them. After those three clients invested in the two CDOs, Aladdin Management erroneously continued to inform clients from 2007 to 2010 that the firm had skin in the game.
According to the SEC’s order against Schlim, he was significantly involved in the MAST program on a day-to-day basis. He made sales calls to potential clients and negotiated with CDO and CLO underwriters about the amount of equity in those securities that Aladdin Capital could place with customers or purchase for itself. Schlim also negotiated the placement fees to be received by Aladdin Capital for securing MAST investments in equity tranches of each CDO or CLO.
The SEC found that Schlim knew that Aladdin used the co-investment representation as a significant marketing feature in its pitches to clients, but he failed to take any action to ensure that such representations were accurate when they were made. As the CFO of Aladdin, Schlim was responsible for reserving funds for Aladdin to co-invest alongside its MAST clients, yet he failed to ensure that funds were reserved or allocated for any co-investments alongside clients in either CDO.
Aladdin Capital Management and Schlim agreed to cease-and-desist orders without admitting or denying the SEC’s allegations. The Aladdin entities agreed to jointly pay $900,000 in disgorgement, $268,831 in prejudgment interest, and a $450,000 penalty. Schlim agreed to pay a $50,000 penalty.
The SEC’s investigation was conducted by James Goldman, Neil Smith, Kathleen Shields, and Kenneth Leung in the SEC’s Boston Regional Office. Mr. Goldman is a member of the Structured and New Products Unit. Mr. Leung participated in a related SEC examination of Aladdin Capital Management.
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