Articles Posted in SEC Settlements

A $60M settlement has been reached between The US Securities and Exchange Commission (SEC) and AR Capital, the real estate investment trust (REIT) manager’s founder Nicholas Schorsch, and American Realty Capital Properties Inc. (ARCP) ex-CFO Brian Block. The three of them are accused of “wrongfully obtaining” millions of dollars related to two mergers involving REITS that AR Capital managed and sponsored.

According to the regulator’s complaint, between the latter part of 2012 and the beginning of 2014, AR Capital took steps so that ARCP, a publicly traded REIT, would merge with American Realty Capital Trust III and American Realty Capital Trust IV, two non-traded REITS that were publicly held. Schorsch was the principal owner and CEO of all three REITs during the time of the merger, while Block was the CFO and a minority shareholder.

The Commission contends that without their board’s permission, the REIT manager, Schorsch, and Block “inflated an incentive fee” during the mergers, which made it possible for them to get another $2.92M in ARCP operating partnership units as a portion of their “incentive-based” compensation.” The SEC is also accusing the three defendants of “wrongfully obtaining” at least $7.2M in charges that were not supported from the sale and asset purchase agreements that were related to the mergers.

The US Securities and Exchange Commission (SEC) is accusing Paul Andrews Rinfret, Plandome LLC, and Plandome Partners LP of defrauding investors in a securities offering scam. At least five investors were allegedly collectively bilked of $19.3M. Rinfret, who is a former New York trader, is now also facing parallel criminal charges.

The SEC, in its complaint, contends that Rinfret told investors they were backing an already successful trading strategy using a proprietary algorithm that had rendered returns in the triple digits—360% in a multiyear period, supposedly—when, in reality, money was being lost on a consistent basis. Meantime, Rinfret allegedly used investors’ money to fund his extravagant lifestyle.

The investors are five individuals who thought they were buying limited partnership interests in Plandome Partners, LP, which Rinfret claimed was an investment fund that he and Plandome Partners LLC ran. These investors thought their funds would be traded in S & P futures contracts and foreign currency.

Dennis Gibb, an investment adviser and the owner/president of Sweetwater Investments Inc., has pleaded guilty to falsification of records and wire fraud. Gibb has also settled parallel civil charges brought by the US Securities and Exchange Commission (SEC) in which part of that deal involves the liquidation of his Sweetwater Income Flood LP Fund.

Gibb set up the private fund in 2008. The year before, he started to solicit prospective investors who were looking for consistent retirement money. The SEC said that between those two years, at least 15 investors put approximately $7.3M in the Sweetwater Income Flood fund.

According to the US Attorney’s Office for the Western District of Washington, Gibb defrauded about 15 investors of over $3M. He touted a sophisticated investment approach that in part involved investing in government bonds with the intent to generate “stable returns.” Meantime, even as Gibb stole investors’ money for his own use, he was telling them that the private fund had $7.8M when, in actuality, it was holding less than $2M.

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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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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