Articles Posted in SEC Enforcement

According to InvestmentNews, sources are reporting that GPB Capital Holdings is now under investigation by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). The probes come just a few months after Massachusetts Secretary of the Commonwealth William Galvin announced that he was conducting a widespread probe into over 60 brokerage firms that sold private placements that came from GPB Capital Holdings. Now, both federal securities regulators are also reportedly looking into these broker-dealers.

GPB, which mostly purchases auto dealerships, raised about $1.8B from investors who bought GPB private placement shares. InvestmentNews reports that according to one brokerage executive, the private placements’ loads were as follows: Investors paid 10% commission to the brokerage firm and financial representative that sold them the shares and they paid 2% went for organization and offering expenses.

Another source reportedly told InvestmentNews that at issue for the SEC in its investigation are:

Prosecutors in Malaysia have filed criminal charges against a number of Goldman Sachs Group Inc. (GS) units and several people over a massive multibillion-dollar  bond fraud involving the sovereign wealth fund the 1Malaysia Development Berhad (1MDB). The individuals charged including former Goldman managing directors Roger Ng Chong Hwa and Tim Leissner, financier Jho Low, who is accused of masterminding the fraud, and ex-1MDB general counsel Jasmine Loo Ai Swan.

Malaysia Attorney General Tuan Tommy Thomas said that the criminal charges are related to fake and misleading statements issued in order to steal $2.7B from the proceeds of three 1MDB subsidiary issued-bonds. The bonds, which Goldman organized and underwrote, were valued at over $6B.

The defendants are accused of conspiring together to bribe public officials in Malaysia so as to allow for Goldman’s involvement with the bonds. The investment bank earned about $600M in fees for its work with the Malaysian sovereign fund.

The US Securities and Exchange Commission has filed fraud charges against Mark Suleymanov, who owns the options trading website SpotFN. According to the regulator, Suleymanov, who is a New York resident, defrauded retail investors of about $4M in a binary options scam that took place from at least 2012 to 2016.

Binary Options

Investor.gov describes a binary option as a kind of options contract upon which payout depends on a “yes/no proposition” outcome and typically involves whether a certain asset’s price will go over or under a set figure. Upon acquisition of the option, a holder no longer has to decide about exercising said binary option because they “exercise automatically.” The holder of a binary option is not entitled to sell or purchase the asset. Upon expiration of the binary option, the holder is given either a cash amount that was previously determined or nothing at all.

In multiple federal civil complaints alleging binary options fraud, the US Securities and Exchange Commission is accusing a number of marketers of defrauding at least 75,000 investors—including retired investors and other retail investors, through the use videos that made false promises that they could make money fast. Investors were allegedly bilked of tens of millions of dollars.

The regulator is charging All In Publishing, LLC, Berry Media Works, LLC, and 10 individuals. The regulator SEC that the marketers sought to “trick” their targets into setting up brokerage accounts and trading in binary options, which are high risk securities.

The marketing campaigns promised investors they would make a lot of money if they set up the binary options account via “free or secret software systems” and then traded in these securities. Meantime, every time an investor set up and put money in a brokerage account, the marketers made money.


Citigroup Must Pay Over $12M Over Dark Pool Allegations

To settle Securities and Exchange Commission that it misled users of a dark pool run by an affiliate, Citigroup Global Markets Inc. (CGMI) and the affiliate, Citi Order Routing and Execution (CORE), will pay $12M. The regulator contends that Citigroup (C) misled users when it told them that high-frequency traders were prohibited from trading in Citi Match, despite the fact that two of the dark pool’s most active users qualified as high-frequency traders. These traders had executed over $9B in orders.

Dark pools are private securities exchange that allows investors, usually big financial institutions, to make anonymous trades. Members of the investing public cannot trade in dark pools. High-frequency trading typically involves the use of supercomputers, usually by financial firms, to make trades within microseconds.


Former Michigan Financial Adviser Faces SEC Charges in $2.7M Investment Scam that Defrauded Seniors

The US Securities and Exchange Commission has filed fraud charges against Ernest J. Romer III, a former Michigan-based financial adviser with 47 disclosures on his Broker-Check record and who was barred by FINRA last year. Romer also pleaded no contest to embezzlement in July and is awaiting his sentence. According to the regulator, between 2014 and 2016, the ex-financial adviser defrauded unsophisticated investors and older retirees of $2.7M.

The regulator contends that Romer convinced at least 30 clients to “sell securities in their brokerage accounts” and transfer their proceeds to the companies CoreCap Solutions or P & R Capital. He purportedly gave them the impression that these were affiliated brokerage firms when, in fact, they were businesses that Romer owned. Many of these investors entrusted him with their life savings.

The US Securities and Exchange Commission announced this month that it is granting $55.5M in whistleblower awards to three people—two of them over the same enforcement action. These latest awards means that 58 whistleblower have been collectively awarded $322M since the regulator began issuing these in 2012.

In the same enforcement action, the SEC awarded $15M to one whistleblower and $39M to another. The latter award is the second largest award that the agency’s whistleblower program has granted to one person to date.

Under the SEC’s program, individuals who voluntarily provide unique, timely, and true information to the Commission, with said information resulting in a successful enforcement action and sanctions of over $1M, may be eligible to receive 10-30% of the funds collected. All awards are taken out of an investor protection fund set up by Congress. The money in the fund comes from sanctions paid by securities law violators.


Steele Financial is Accused of Investor Fraud

The US Securities and Exchange Commission has filed civil charges against investment advisory firm Steele Financial Inc. and its owner Tamara Steele. According to the regulator, they allegedly sold $13M of risky securities to over 120 advisory clients. A lot of these clients are teachers, ex-teachers, or other public education employees. The SEC contends that Steele and her investment advisory firm did not tell them that Steele Financial would be making up to 18% in commissions in sales.

According to the Commission’s investment advisory fraud complaint, from 12/2012 to 10/2016, Stele Financial and Steele sold over $15M of Behavioral Recognition Systems Inc. securities. BRS is a company that the SEC has charged with fraud in the past. Meantime, Stele and her firm made over $2.5M of commissions.

The SEC has filed fraud charges against hedge fund adviser Gregory Lemelson and his Massachusetts based investment advisory firm Lemelson Capital Management LLC. The regulator is accusing them of illegally profiting over $1.3M from an alleged short-and-distort scheme that involved Ligand Pharmaceuticals.

According to the hedge fund fraud allegations, Lemelson and his investment advisory firm put out false information about the San Diego-based pharmaceutical company after the hedge fund adviser took a short position in Ligand for The Amvona Fund. Lemelson is a part owner and advisor of this other hedge fund.

The SEC’s complaint said that Lemelson’s false statements were meant to rattle investor confidence in Ligand, drive its stock price down, and increase his short-position’s value. He allegedly used interviews, written reports, and social media to disperse the false claims.

The US Securities and Exchange Commission has filed fraud charges against 1 Global Capital LLC, a Florida-based cash advance company, and its ex-CEO Carl Ruderman. According to the regulator, they allegedly defrauded at least 3,400 investors and since 2014 have fraudulently raised over $287M through unregistered securities sales.

According to the SEC’s complaint, 1 Global worked with a network of both registered and unregistered investment advisors, brokers who were barred from the industry, and other sales agents. The company paid them millions of dollars in commissions for offering and selling the unregistered securities to investors in at least 25 US states.

Investors were promised that they would make money from loans that 1 Global would issue to companies. The investments were touted as “high-return, low-risk” and purportedly involved the issuing of short-term cash advances to businesses that didn’t qualify for financing of the “more traditional” varieties.

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