Articles Posted in Securities and Exchange Commission

79 investment advisers have settled charges brought by the US Securities and Exchange Commission (SEC) accusing them of not properly disclosing conflicts of interests involving the sale of costlier mutual fund share classes that caused them to earn more fees. The regulator’s action is related to its Share Class Section Disclosure Initiative. Announced by the SEC’s Division of Enforcement early last year, the initiative gives firms the chance to report disclosure failures that violate the Advisers Act, while offering them more “favorable settlement terms” in return.

Here is a partial list of some of the investment advisers involved in this case:

  • AXA Advisors

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:

The US Securities and Exchange Commission announced this week that Christopher Faulkner, a Texas businessman, will pay $23.8M to settle oil and gas charges involving an alleged over $80M securities scam that bilked hundreds of investors. Faulkner, who called himself the “Frack Master” and claimed to be an expert in hydraulic fracturing, is accused of setting up several companies and then selling interests in oil and gas prospects to investors in Texas and other US states.

The regulator contends that Faulkner:

  • “Systematically deceived” investors through offering materials that were “false and misleading.”

26-Year Old Mayor is Arrested and Accused of Investor Fraud

Jasiel Correira, who is the mayor of Fall River, Massachusetts, has pleaded not guilty to multiple criminal counts of wire fraud and tax fraud. The 26-year-old was arrested this week following allegations that he defrauded investors of over $230K.

Correira maintains that the investor fraud allegations are false. He refuses to step down as city mayor.

To settle an Securities and Exchange Commission case, Maxwell Technologies, Inc. and one of its former sales executives and officers, Van Andrews, have agreed to pay $2.8M and $50K in penalties, respectively, but without denying or admitting to the regulator’s allegations. They are not, however, admitting to or denying the SEC’s finding that they were involved a fraudulent revenue scam that inflated the energy storage company’s reported financial results.

The regulator’s order said that the company acknowledged revenue from ultracapacitor sales “prematurely” so as to better fulfill the expectations of analysts. Andrews is accused of inflating revenues through secret customer deals and by doctoring records to hide the scam from outside auditors, as well as company finance and accounting staff.

As part of his settlement, Andrews is barred for five years from taking on an officer or director role in a public company. Also settling charges against them related to this matter are ex-Maxwell CEO David Schramm, who will pay almost $80K in disgorgement and prejudgment interest, plus a penalty. Ex-Maxwell controller James DeWitt will pay a $20K penalty. The two men are accused of not doing an adequate enough job of addressing red flags indicating that misconduct may have been afoot. Ex-Maxwell CFO Kevin Royal has not been charged by the SEC with wrongdoing. However, he repaid the company the $135,800 in compensation he received during the time that the alleged accounting violations are said to have occurred.

The Financial Industry Regulatory Authority has fined Aegis Capital Corp. $550K for inadequate supervision and anti-money laundering systems related to its low-priced securities sales. According to the self-regulatory organization, the firm’s supervisory system that oversees trading involving delivery versus payment (DVP accounts) was not designed in a manner reasonable enough to properly “monitor and investigate” trading in the accounts, especially those involving securities transactions that were priced low.

With DVP accounts, a broker-dealer making the trades does not have to be holding the securities that are bought and sold. FINRA said that Aegis did not “adequately monitor or investigate” seven DVP customer accounts, a number of which belonged to foreign financial firms, in which trading involved the liquidation of billions of dollars of such securities. These transactions resulted in millions of dollars in proceeds. A number of these institutional clients made the transactions for underlying customers whose identities Aegis did not know.

The SRO found that Aegis failed to mark these transactions as suspect even after a clearing firm highlighted that there were anti-money laundering-related red flags. Aegis is settling FINRA’s case but without denying or admitting to the regulator’s findings.

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Howard Present, the ex-CEO and cofounder of F-Squared Investments, must pay more than $13M—nearly $11M of disgorgement, almost $1.4M of interest and a nearly $1.6M penalty. The final judgement, issued by U.S. District Judge Leo Sorokin in Boston, comes after a federal jury found Present liable for the false and misleading statements made to investors.

It was in 2014 that the US Securities and Exchange Commission charged Present and his investment management firm with misleading investors about its AlphaSector strategy. At the time, F-Squared was the biggest market of index products that use exchange-traded funds.

The SEC accused F-Squared of false advertising related to its touting of a “successful seven-year track records” for its AlphaSector strategy that it claimed was based on real investments, real clients, and real performances, when, in fact, the algorithm that the company claimed to use didn’t even exist during that time period of this supposed success. Instead, the data that the F-Squared marketed was a product of backtesting—not real testing—even though Present and his firm specifically stated that their AlphaSector strategy had not been backtested.

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The US Securities and Exchange Commission has awarded two whistleblowers almost $50M and another over $33M in the largest whistleblower awards that the regulator has issued to date. This ups the total of SEC whistleblower awards granted to $262M to 53 individuals in the last six years.

According to the SEC Office of the Whistleblower Chief Jane Norberg, these latest awards show that whistleblowers can offer information that is “incredibly significant,” making it possible for the regulator to go after serious violations that could have gone “unnoticed. “ Until these latest awards, the largest SEC whistleblower award granted was $30M in 2014.

Whistleblowers who provide quality, unique information involving securities law violations that lead to a successful enforcement action rendering over $1M in monetary sanctions may be eligible to receive an award that is 10-30% of the funds collected.

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The US Securities and Exchange Commission has filed fraud charges against Theranos Inc., its CEO and founder Elizabeth Holmes, and its ex-President Ramesh Balwani. The regulator contends that they engaged in a years-long fraud that raised over $700M from investors.

According to the SEC’s complaint, the three of them made statements that were false, exaggerated, and/or misleading regarding the company’s business, finances, and technology. They purportedly did this in presentations to investors, media articles, and product demos.

Because of these erroneous, deceptive, and inflated statements, investors thought that Theranos’s main product, which is a portable blood analyzer, could perform comprehensive blood tests with minute blood samples. Also, Theranos claimed that the company had the technologies needed to transport a finger stick sample of blood, place the sample in a specialized device that would go into an analyzer, and the analyzer could determine the results. The findings could then be sent to the care provider or patient. Theranos’ technology was supposedly able to offer cheaper, speedier, and more accurate results than any other blood testing labs—not to mention that it was portable.

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SEC Reportedly Investigating Wells Fargo Over Possible Inappropriate Investment Sales to Wealth Management Clients

According to news reports, the US Securities and Exchange Commission is investigating Wells Fargo’s (WFC) Wealth Management unit to see whether its clients were inappropriately sold certain in-house investment services even though these were not in their best interests. A source told Bloomberg that the regulator’s role in the probe has not been publicly disclosed.

However, in a regulatory filing, Wells Fargo revealed that it is looking into whether inappropriate recommendations were made related to 401(k) plan rollovers, alternative investments, and brokerage customer referrals to the firm’s “investment and fiduciary-services business.” The bank noted that it was assessing these matters in its wealth management business in the wake of inquiries made by federal agencies.

Bloomberg notes that it was in 2015 that JPMorgan Chase & Co. (JPM) consented to pay $267M over allegations that its customers were not told that it had profited by placing their funds in certain hedge funds and mutual funds that charged particular fees.

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