Securities Fraud

California Lawyer Goes to Prison for Securities Fraud

Published on: August 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Richard Weed, a financial services lawyer, has been sentenced to four years in prison over his involvement in a stock scam involving a number of publicly trading companies. His sentence was issued in the U.S. District Court in Boston.

Weed was convicted of securities fraud and wire fraud in May. He and two others are accused of conspiring to make it appear as if CitySide, a ticket reseller based in Boston, was growing as a company when, in fact, it was in financial trouble. Weed was the ticket reseller’s secretary and on its board.

He drafted false and misleading legal opinion letters in order for his co-conspirators to get free trading stock. He also had the stock distributed to various entities under their control to hide their ownership of CitySide. Because of this, said the U.S. Attorney’s Office, District of Massachusetts, the co-conspirators were able to manipulate the reseller’s stock and sell shares at prices that were artificially inflated.

Apollo Global Management Settles Supervisory and Disclosure Failure Charges for $52.7M

Published on: August 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Apollo Global Management (APO) has agreed to settle for $52.7M allegations that the firm misled fund investors regarding fees and a loan agreement, as well as failed to supervise a senior partner. The settlement was reached with the U.S. Securities and Exchange Commission, which found during its probe that Apollo advisers did not adequately disclose benefits they obtained. This ended up harming fund investors.

Four private equity fund advisors will be paying part of the settlement include:

· Apollo Management V, LP

Securities Fraud News: Hedge Fund Manager Accused of Securities Fraud Involving Payoffs to the Terminally Ill, SEC Halts Trading in Neruomama Shares, and Commodity Pool Fraud Leads to More than $10M in Penalties and Restitution

Published on: August 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Investment Advisor Firm Accused of Paying Off Terminally Ill Patients to Commit Fraud
The SEC has filed fraud charges against Donald Lathen and his Eden Arc Capital Management. Lathen is accused of recruiting at least 60 individuals who had less than six months to live and agreeing to pay them $10K each for the use of their names on joint brokerage accounts. When one of these individuals would die, he would allegedly redeem the investments by falsely representing that he and the terminally individual person were joint account holders.

Lathen recruited the terminally ill patients through contacts he had at hospices and nursing homes. In reality, it was Lathen’s hedge fund that owned the option investments.

As a result, of the purported omissions and misrepresentations, issuers paid over $100M in early redemptions. Lathen is accused of violating the custody rule by not properly putting the securities and money from the hedge fund in an account under the name of the fund or in one that held only client money and securities.

SEC Stops Trading in Neromamam Ltd.
The SEC has stopped the trading of Neuromama Ltd. (NERO) shares. The shares trade on the mostly unregulated over-the-counter markets and the regulator is concerned about transactions that may be “potentially manipulative, as well as other red flags that have purportedly been cropping up for years.

Neruomama’s paper value went up times four to $35B this year despite not much volume. The company’s shares went up by four times to $56/share. (On January 15, ’14, its value was $4.73B.)

Ex-Perella Weinberg Partners Managing Director is Convicted of Insider Trading, Giving Tips to His Dad

Published on: August 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A jury has Sean Stewart, the ex-managing director of Perella Weinberg Partners LP of insider trading. Stewart is accused of giving his dad confidential tips about five health-care deals.

According to prosecutors, Stewart started giving his dad insider information in 2011 while he was VP of J.P. Morgan Chase & Co.’s (JPM) healthcare investment banking group. He continued to tip his dad when he went to work for Perella. As a result of the insider information, Stewart’s dad, Robert Stewart, and Richard Cunniffe made over $1M in illegal profits. The elder Stewart has already pleaded guilty to the charges against him.

During the trial, the younger Stewart testified that his dad had betrayed him by using the information that he had shared with him during casual conversation. He testified that he lied to compliance lawyers at JPMorgan in 2011 to protect his reputation and his father. He claimed that he never thought that his dad would use the information to make trades.

Robert has already been sentenced to four years of probation for his role after pleading guilty to securities fraud. Also, he had to forfeit $150K in ill-gotten gains. The elder Stewart shared the tips he received from his son with two others, including Cunniffee, who testified that they used the tips to buy stock options. Cunniffee had earlier pleaded guilty to insider trading.

San Francisco Investment Manager is Sued Over $2M Hedge Fund Fraud

Published on: August 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed a financial fraud lawsuit against Nicholas M. Mitsakos and his Matrix Capital Market. Mitsakos and his investment advisory firm are accused of pretending that they managed millions of dollars in assets. They allegedly stole about $800K from the first client that invested with them. The client, a Cayman Islands fund, invested $1.99M.

Mitsakos and his firm are accused of soliciting investors in a purported hedge fund. They are said to have falsely claimed they were successful money managers overseeing millions of dollars even though they had no assets. Instead, they allegedly made up a hypothetical investment portfolio in which the investments made up to 66% of yearly returns. The two of them are accused of pretending that these trades were real.

Commenting on the hedge fund fraud, SEC New York Regional Office Director Andrew Calamari said that it is important for investors to verify any information about an investment opportunity, especially one that is touted as having a “lofty historical performance.”

SEC Charges Ex-Philadelphia Eagles Football Player With $10M Fraud

Published on: August 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Robertson Jr., an ex-Philadelphia Eagles football player, is charged with financial fraud. According to the Securities and Exchange Commission, Robertson bilked investors in a $10M scam.

The SEC claims that Robertson, Sherman Vaughn Jr. and their Cavalier Union Investments LLC promised investors they would invest in diversified holdings. Instead, they took nearly $6M of investors’ money to cover their own spending and pay earlier investors. Expenditures purportedly included cars, luxury items, spa visits, family vacations, and educational expenses.

The two men are accused of claiming that the unregistered debt securities they were selling were safe and would generate up to 20%. They also purportedly told people that experienced invest advisers were running Cavalier’s investment funds when there were no advisers or funds.

The investment firm, said the SEC was “functionally insolvent” soon after it was set up, yet the defendants allegedly concealed this from prospective investors and depended on the latter’s money to stay in business. The government said that Cavalier only invested in restaurants and all of them failed.

Securities Fraud: Unregistered Representatives Bilk Investors of Over $5M & Go Shopping, Broker to Go to Prison Over $131M Market Manipulation Scam, and an Illinois Man is Convicted in $20M Scheme

Published on: August 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Files Fraud Charges Against Unregistered Representatives in $5M Fraud
The U.S. Securities and Exchange Commission has obtained an asset freeze against Matthew White, Daniel Merandi, and Rodney Zehner for alleged financial fraud. The three men are not registered to sell investments. They are accused of raising over $5M from investors and spending the money on expensive shopping expeditions.

According to the SEC, Merandi, White, and Zehner fraudulently issued $1B in unsecured corporate bonds using their shell company. They said the funds would go toward developing a resort. Although they never raised enough money to begin the project, they took $5.6M that they did raise from investors and went shopping at Gucci, Prada, Saks Fifth Avenue, Versace, and Louis Vuitton. The men allegedly conducted bogus transactions to raise the bond’s price even though the securities were expired and had no value.

The Commission is accusing Merandi, White, Zehner, and their companies of violating the Securities Act of 1933’s Section 17(a) antifraud provision, the Exchange Act of 1934’s Section 10(b), and Rule10b-5. It wants permanent injunctions, penalties, and disgorgement.

Broker Pleads Guilty to Fraud Involving $131M Market Manipulation Scam
Registered broker Naveed Khan has pleaded guilty to securities fraud. Khan faces up to 20 years behind bars for his involvement in a $131M pump-and-dump scam that involved the market manipulation of ForceField Energy Inc. (FNRG).

Between 1/09 and 4/15, the defendant and others sought to bilk ForceField investors. The fraudsters are accused of using nominees to sell and buy the LED company’s stock without notifying current investors and potential ones, orchestrating trading to make it seem as if the public was interested in ForceField’s stock, and hiding payments made to brokerage firms and stock promoters. These broker-dealers purportedly marketed and sold the stock under the guise of being independent.

SEC Stops $5M Fraud, Ex-Investment Adviser Faces Criminal Charges, Another Pleads Guilty, and a Broker is Barred for Bilking Elderly Customer Through Variable Annuities

Published on: July 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Wins Asset Freeze Against Two Ex-Brokers in Alleged $5M Fraud
The Securities and Exchange Commission has obtained an asset freeze from a court to stop the alleged ongoing fraud by ex-brokers Douglas Albert Dyer and James Hugh Brennan III. They are accused of raising over $5M from investors and improperly using their money. Both men have disciplinary histories.

According to the Commission, since 2008 Dyer and Brennan had sold purported shares in several companies to over 240 investors but did not register the stock. They allegedly moved this money into their personal accounts or to their wives’ accounts. They also purportedly did not disclose that Brennan was banned from the brokerage industry or that Dyer had been fined and suspended for unrelated unauthorized transactions involving customer accounts.

Also named in the SEC case is Broad Street Ventures, which is Brennan and Dyer’s company. Their wives are relief defendants. The regulator wants ill-gotten gains, interest, penalties, and permanent injunctions.

Ex-Investment Adviser Faces Criminal Charges for Allegedly Stealing Over $5.1M from Clients
Bradley Smegal is charged with securities fraud. The ex-Washington State investment advisor is accused of stealing over $5.1M from at least 14 clients.

Prosecutors say that between 8/07 and 1/13 Smegal persuaded clients to invest with entities that he said “guaranteed” specific return rates and were “conservative.” According to court documents, he failed to disclose he had a stake in the investments, and he moved $825,00K of the funds into his own account.

State Street to Pay $382M for Misleading Clients, Including Mutual Funds, Over Hidden Markups In Foreign Currency Exchange Trades

Published on: July 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has arrived at a global settlement with State Street Bank and Trust Company. According to the regulator, State Street misled custody clients, including mutual funds, about hidden markups that were added to foreign currency exchange trades. The firm will pay $382.4M, including $167M in penalties and disgorgement to the Commission, a $155M penalty to the U.S. Justice Department, and at least $60M to ERISA plan clients.

Among the other services it provides, State Street facilitates indirect foreign currency exchange trading for clients so that they can sell and purchase foreign currencies in transactions involving foreign securities. An SEC probe found that State Street made a substantial chunk of money in revenue when it misled some clients about Indirect FX, claimed that it offered the most competitive rates on trades, charged “market rates,” and provided “best execution.” The Commission contends that the company did not try to get the best prices for clients.

The SEC believes that State Street concealed markups so that custody clients would not notice. It also found that registered investment company custody clients were given monthly transaction reports and trade confirmations that were materially misleading because of misrepresentations about foreign currency exchange transaction pricing.

Securities Fraud News: Union Pension Funds Settle Class Action Case for $64M, Deadline for Implementing Volcker Rule is Extended, and Ex-Panther Energy Trader Goes to Prison For Spoofing

Published on: July 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

$64M Pension Fund Fraud Settlement Reached Against Dana Holding Corp. Executives
Plaintiffs in the shareholder class action case brought against Michael Burns and Robert Richter have reached a $64M out-of-court settlement with the two ex-Dana Holding Corp. executives. The union pension funds include lead plaintiffs SEIU Pension Plans Master Trust, Plumbers & Pipefitters National Pension Fund, and the West Virginia Laborers Pension Trust Fund.

They accused Bornes and Richter, the company’s ex-CEO and CFO, respectively, of purposely misleading investors about Dana Holding’s financial woes in the months prior to its filing for bankruptcy in 2006. Although the securities fraud case was initially dismissed by a district court on the grounds that the plaintiffs failed to show that the two men and Dana knew they were engaging in wrongdoing, the 6th U.S. Circuit Court of Appeals in Cincinnati reversed that decision, saying evidence showed otherwise.

Federal Reserve Gives Banks More Time to Meet Volcker Rule Requirements
The U.S. Federal Reserve has extended the deadline for banks to rid themselves of ownership in certain legacy investments and cut ties with funds that are barred under the Volcker Rule. The rule, part of the Dodd-Frank Act, aims to stop banks with government-backed deposits from betting on Wall Street for their benefit. It doesn’t allow insured banks and their subsidiaries to own or be affiliated in any way with a private equity fund or hedge fund or take part in proprietary trading. Lenders are not allowed to trade using their own capital and are restricted from investing in funds.