Securities Fraud

SEC Investigates Statim Holdings After Hedge Fund Investors Are Promised They Won’t Lose Any Money

Published on: April 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg reports that according to sources, the US Securities and Exchange Commission has launched a probe into Statim Holdings. Inc., an Atlanta, Georgia-based financial firm, after the latter told investors in its main hedge fund that there was no risk of financial losses for investing. The regulator’s investigation comes in the wake of a state probe by the Georgia Securities Division. Statim is helmed by Joseph A. Meyer.

Meyer told investors in the Arjun fund’s main share class that they would never sustain financial losses. However, they have to commit their funds for a decade or lose 50% of their principal should they decide for early redemption.

The hedge fund manger has said that he uses a computerized system that he designed and he invests the bulk of clients’ funds in Treasury bonds. In 2015 Bloomberg News placed Arjun at number eight in its list of hedge funds that had assets ranging from $250M and $1B. BarclaysHedge has given 17 awards to Arjun.

Securities Fraud: Ex-Broker Gets Prison Sentence for $1.2M Elder Financial Fraud, Massachusetts Man Admits to Bilking Neighbors, & More Than Two Dozen 27 Parties Under Fire Over Alleged Stock Promotion Scams

Published on: April 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former Wells Fargo and LPL Financial Broker Receives 41-Month Prison Term for Elder Financial Fraud
Robert N. Tricarico, an ex-broker for both Wells Fargo Advisors (WFC) and LPL Financial (LPLA), will serve 41 months behind bars and pay restitution of over $1.2M after he pleaded guilty to elder financial fraud. The Securities and Exchange Commission, which brought a civil case against Tricarico, has barred him from the securities industry.

Court documents note that from 1/2010 to 6/2013, Tricarico was the financial adviser for a sick and elderly investor. He misappropriated over $1.1M from her by writing a number of checks to himself without the client’s consent, misappropriated checks written to her, liquidated her coin collection, and used her funds for his own expenses.

He has also admitted to bilking two other victims of $20K when he falsely represented that their money would go toward a business venture. He kept their money for himself.

Swaps Interest Rate Cases: FHLBNY Settles With Lehman Brothers for $70M & Banco Santander and Portugal Come to An Agreement

Published on: April 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Home Loan Bank of New York will pay Lehman Brothers and its Special Financing unit a $70M settlement in an interest-rate swaps case. The plaintiffs sued FHLBNY two years ago seeking over $150M that they claim they were owed related to their position on more than 350 swaps and options transactions.

Lehman filed for Chapter 11 bankruptcy protection in 2008. The move froze the markets while spurring the end of millions of derivative transactions in which it was involved. A few days later, when FHlBNY ended its swaps with Lehman, it did so with a $16.5B notional amount.

According to Lehman, due to interest rate fluctuations after its bankruptcy filing, FHLBNY returned and “cherry picked” other end dates. As a result, claims the plaintiff, the latter “massively understate” how much it owed Lehman.

Securities Cases: SEC Fines Credit Suisse $8M Over Improper Investments, $5M Investment Fraud Case Leads to Guilty Plea, and Florida Man is Ordered to Pay Back Investors $2.9M

Published on: April 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse Unit and Ex-Investment Adviser Settle SEC Charges, Pay $8M Fine
Credit Suisse AG (CS) unit Credit Suisse Securities and Ex-investment adviser Sanford Michael Katz have settled SEC charges accusing them of improperly investing the funds of clients in “Class A” mutual fund shares instead of “institutional” shares that were less costly. According to the regulator, the firm and Katz did not adequately disclose the conflict of interest presented by choosing the Class A investment, which allowed them to profit more at investors’ expense. They are accused of breaching their fiduciary duties.

The SEC’s orders state that Credit Suisse made about $3.2M in 12b-1 fees that could have been avoided. According to the Commission, about $2.5M of those fees came from Katz’s clients. The regulator said that the firm did not put into place policies and procedures to prevent fiduciary breaches.

Both Credit Suisse and Katz settled the SEC charges without denying or admitting to the regulator’s findings. Together, they have to pay over $3.2M of disgorgement, over $577K of prejudgment interest, and an over $4.1M penalty. A fair fund has been set up to compensate clients.

Retired San Antonio Spurs Star Tim Duncan’s Ex-Financial Adviser Pleads Guilty To Texas Securities Fraud

Published on: April 4, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In federal court in Texas, Charles Banks, the former financial adviser to ex-NBA star Tim Duncan, has pleaded guilty to wire fraud. Banks admitted to misleading Duncan into guaranteeing a $6M loan to a company that had financial connections to the ex-advisor.

Duncan, who retired from professional basketball in 2016, claims that he lost more than $20M through deals he was involved in because of Banks. The two first started working together in 1997 when Banks was employed with CSI Capital Management Inc. and Duncan was an NBA rookie. After Banks left the firm he continued working with Banks.

Banks encouraged Duncan to lend a company, Gameday Entertainment, $7.5M. The company then obtained a $6M bank loan using what Duncan contends was his forged signature. Banks was Gameday’s chairman at the time.

CFTC Cases: Ex-Citigroup Global Markets Traders Settle Spoofing Charges and Vision Financial Partners to Pay Over $6.5M in Off-Exchange Binary Options Fraud Case

Published on: March 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former Citigroup Global Markets Traders to Pay Penalties for Spoofing

Ex-Citigroup Global Markets Inc. (C) traders Jonathan Brims and Stephen Gola have settled spoofing charges that the US Commodity Futures Trading Commission brought against them. According to the regulator, the two men engaged in spoofing while trading for the firm, and they must now pay $200K and $350K in civil monetary penalties, respectively. They also are temporarily “banned from trading in futures markets.” Goal and Brims won’t be allowed to resume trading in the futures markets until six months after they’ve paid their penalties in full.

According to their respective orders, the two men engaged in spoofing, which involves making a bid or offer with the intention to cancel the bid or offer prior to execution of the bid. They did this over 1,000 times in different Chicago Mercantile Exchange US Treasury futures products. They would make offers or bids of at least 1,000 lots even though they planned to cancel the orders before they actually occurred.

The orders were made after another small offer or bid was made on the other side of the same market “or a correlated futures or cash market.” The CFTC said that the two men initiated the orders in order set up or increase an already existing imbalance in the order book. They purportedly canceled the orders after the smaller orders were filed or if they determined that there was too high a risk that their orders might actually go through.

Securities News: Deutsche Bank Unit Ordered to Pay $150M for Libor Rigging, FINRA Bars Broker Indicted in NY Pension Fund Scam, and Hedge Fund Manager Who Lost Investors’ Money In Madoff Ponzi Scam Commits Suicide

Published on: March 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Judge Orders Deutsche Bank Subsidiary to Pay $150Mfor Libor Rigging
A federal judge is ordering Deutsche Bank Group Services, a subsidiary of Deutsche Bank (DB), to pay $150M for its involvement in an interest rate manipulation scam. The London unit pleaded guilty last year to rigging the London Interbank Offered Rate benchmark.

The fine comes two years after Deutsche Bank settled Libor rigging allegations with US and British regulators for $2.5B. According to prosecutors, derivatives traders at the German bank and at other banks colluded together to manipulate LIBOR rates to preference their trading positions.

Libor rigging allegations are not the only claims that Deutsche Bank has been contending with. Recently, the German Bank reached a $7.2B settlement with the US DOJ over its part in the 2008 global financial crisis. Meantime, NY and British officials ordered Deutsche Bank to pay $630M in fines because of alleged money laundering that occurred in Russia.

Stronger Enforcement of Civil Penalties Act Seeks To Raise SEC Enforcement Penalties

Published on: March 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A bipartisan bill introduced in the US Senate wants to let the US Securities and Exchange Commission order violators of securities laws to pay much higher sanctions. If turned into law, the legislation would allow the regulator impose up to $1M as a penalty on individuals for every violation of the most serious offenses. The per penalty violation maximum for financial firms would be raised to $10M.

Currently, individuals cannot be ordered to pay a more than $181,071 penalty and the maximum for firms is $905,353. The SEC would have the option of tripling the cap on the maximum for repeat offenders who have been held civilly or criminally liable for securities fraud within the last five years.

At the moment, the SEC can calculate penalties that are the equivalent of the gross amount that were the ill-gotten gains only if the case is heard in federal court. The regulator cannot do so if it deals with the case administratively. The bipartisan bill would allow the regulator to assess such penalties in-house.

Securities Fraud: RIA and Broker Will Go to Prison Over $15M Scam, Ohio Financial Adviser Pleads Guilty in Senior Financial Abuse Case, and SEC Wants Ex-Financial Investment Broker Barred

Published on: March 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Registered Investment Adviser and Broker Convicted in $15M Pump-and-Dump Scam
A federal jury has found Sheik F. Kahn, a Nevada RIA, and Christopher Cervino, a New Jersey broker, guilty of securities fraud, conspiracy to commit securities fraud, wire fraud, and conspiracy to commit wire fraud in an over $15M stock scam that targeted 100 investors. Kahn also was convicted of aggravated identity theft crimes and investment adviser fraud. Both she and Cervino were previously affiliated with New York-based firm Primary Capital.

According to the U.S. Attorney for the Southern District of New York, the pump-and-dump scam involved VGTEL (VGTL), a publicly traded over-the-counter company. The securities scam was led by Edward Durante, who pleaded guilty last year to a number of crimes, including securities fraud, conspiracy, perjury, and money laundering involving VGTL.

Cervino and Kahn are accused of artificially inflating the stock price of VGTel from 25 cents/share to up to $1.90/share in 2012 and they also inflated trading volume, raising their ability to bring in private investments in the stock.

US Attorney’s Office Charges Two Ex-China Medical Technologies Executives in $400M Securities Fraud

Published on: March 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

China Medical Technologies Inc. founder and ex-CEO Xiaodong Wu and Ex-CFO Tak Yung Samson Tsang are charged with securities fraud, wire fraud conspiracy, and securities fraud conspiracy. The two men are accused of bilking the company’s noteholders and investors of over $400M. They are now fugitives and live in China.

Investors thought they were getting involved in a medical device company that was listed on NASDAQ. Funds were supposed to be invested in China Medical or used to buy back existing debt. However, according to the US Attorney’s Office for the Eastern District of New York, Tsang and Wu misrepresented how proceeds raised via two note offerings would be used and then stole investors’ money. They sent the funds to entities that they were either affiliated with or controlled.

The indictment said that between 1/2005 and 11/2012, Tsang, Wong, and a co-conspirator ran this securities scam and made material misrepresentations and omissions about the investments. To facilitate their fraud, the then-executives caused a China Medical outside auditor and independent director to step down, ceased issuing public disclosures about how material events were impacting security values, and stopped paying interest on the notes.