Securities Fraud

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses

Published on: January 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Elm Tree Investment Advisors, its Founder, of $17M Securities Fraud

The Securities and Exchange Commission has filed fraud charges against Elm Tree Investment Advisors LLC and its founder Frederic Elm for running a Florida-based securities scam that raised over $17 million in a little over a year. The regulator contends that Elm, his firm, and the funds Elm Tree Motion Opportunity LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Investment Fund LP misled investors and used the bulk of the funds to issue Ponzi-like payments. Elm also is accused of using the money to purchase expensive homes, jewelry, and autos, as well as cover his daily living expenses.

According to the SEC, Elm, his unregistered advisory firm, and the three funds violated the regulator’s anti-fraud rules as well as federal securities laws. The Commission wants relief for investors as well as the restoration of the purportedly ill-gotten gains and financial penalties.

SEC Accuses Canadian Man of Fraudulent Trading Scam, Use of “Layering” Strategy

Published on: January 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging a Canadian citizen with running a market manipulation scam that involved making orders to trick others into selling or purchasing U.S. publicly traded stocks at prices that were depressed or artificially inflated. The strategy is known as “layering.” U.S. Attorney’s Office for the District of New Jersey has filed criminal charges against Aleksandr Milrud in a parallel action.

According to the SEC’s complaint, submitted in a federal court, Milrud started recruiting online traders primarily in Korea and China beginning at least as early 2013 and giving them the cut of the profits made from the scheme. He purportedly gave traders access to trading accounts and told them how to avoid coming under the regulatory scrutiny when layering.

To avoid detection, Milrud would wire funds to an offshore account and have the money delivered to him in a suitcase, as well as use middlemen. He also allegedly had traders use multiple user names, addresses, computers, and Internet protocols (IP).

Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors

Published on: January 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to the Securities and Exchange Commission, ex-investment adviser Sherwin Brown is continuing to offer financial advice even though the regulator barred him from the industry and ordered him to pay $1.3 million for allegedly diverting client monies. Brown now calls himself a “money coach” and has kept his Jamerica Financial Inc. in operation, receiving compensation for his services. At a certain point, the firm, which has since been ordered inactive, had nearly $30 million in assets under management.

The regulator contends that between 6/11 and 5/14, a Wells Fargo & Co. (WFC) account in Jamerica Financial’s name received over 120 deposits totaling $330,000. The deposits were payable to Brown and his company. Notes in check memo lines indicated that the money was for investment advisory services.

Brown, who was barred from the industry in 2011, operates TheOfficialMoneyCoach.com, which includes a blog on investing. The site also promotes his investment books.

Securities Fraud News: SEC Charges NY Firm With Stealing Investor Funds, Stock Promoter Accused of Bilking Clients Over Twitter, Facebook Pre-IPO Shares, and NY Lawyer Under Fire for Alleged Ponzi Scam

Published on: December 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges NY Firm, Fund Managers With Securities Fraud

The Securities and Exchange Commission is charging VERO Capital Management, its CFO Steven Downey, President Robert Geiger, and General Counsel George Barbaresi with secretly taking investor money to support a side business. The three men ran funds with offering documents that touted their objective as making good returns via mortgage-backed securities investments. Instead, after winding down the funds, the officers allegedly diverted around $4.4 million to undocumented bridge loans to an affiliate company that was supposedly in risk management. Investors and the funds’ directors were purportedly not notified that these unauthorized loans were taking place.

The SEC Enforcement Division also claims that VERO Capital and the three men compelled the funds to buy three notes totalling $7 million from an affiliate, which is a principal transaction that requires written notice and consent of a client before the transaction can be finished. The division claims that no attempt was made to get this mandatory notice. The regulator is alleging multiple violations of the Investment Advisers Act of 1940 and other rules.

Financial Firm News: NH Regulator Fines Merrill Lynch $400K for Telemarketing Compliance Shortfalls, Court Orders Vasquez Global Investments to Pay More Than $1.3M for Commodity Pool Fraud, and FINRA Sanctions Monex Securities Inc.

Published on: December 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

New Hampshire Says Merrill Lynch Must Pay $400,000 For Not Complying with Telemarketing Rules

Bank of America (BAC) Merrill Lynch has consented to pay $400,000 to resolve claims made by the New Hampshire Bureau of Securities Regulation accusing the firm of improperly soliciting business when it called people who were on do-not-call lists and were not clients. As part of the deal, Merrill Lynch will improve its telemarketing procedures and policies. A spokesperson for the brokerage firm says it has already enhanced internal controls to avoid making inappropriate calls moving forward.

According to the regulator, not only did the broker-dealer fail to fully comprehend how to comply with the state’s rules for telemarketing but also the firm did not reasonably supervise its agents’ telemarketing activities in New Hampshire.

Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund

Published on: December 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Reliance Financial Advisors and its co-owners Walter F. Grenda Jr. and Timothy S. Dembski with securities fraud. The agency says that the Buffalo, NY-based investment advisory firm and the two men misled clients when recommending that they get involved in a hedge fund managed by portfolio manager Scott M. Stephan.

Grenda and Dembski of Reliance Financial Advisors guided senior investors toward making highly speculative investments in the Prestige Wealth Management Fund, which Stephan managed, even though they allegedly knew he was inexperienced in this type of investing. The clients, who were either close to retirement, retired, or living on fixed incomes, collectively invested around $12 million.

Stephan was supposedly going to employ a trading strategy that involved a specific computer “algorithm,” which actually only day traded. Instead, he started making trades manually, his approach eventually playing a part in the hedge fund’s failure. The SEC has said that Stephan’s investing experience was greatly exaggerated in offering materials. (The majority of his career involved collecting car loans that were overdue.)

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

Published on: December 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations

According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.

Money Manager Paul Greenwood Gets 10 Years in Prison for $1.3B Investment Fraud

Published on: December 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodity Future Trading Commission says that hedge fund Paul Greenwood has been sentenced to ten years behind bars. Greenwood, who was the general partner of WG Trading Co., pleaded guilty to numerous criminal charges, including securities fraud, wire fraud, money laundering, commodities fraud, and conspiracy in 2010.

Greenwood and fellow WG Trading manager Steven Walsh were indicted on charges that accused them of conspiring to bilk investor of $554 million in an investment scam that U.S. prosecutors say ran from 1996 through 2009. Greenwood admitted to “sort of” operating a Ponzi scam and spending a minimum of $75 million of investors’ funds to pay for his passion for museum-grade teddy bears and other lavish spending. The scheme purportedly cost investors somewhere between $800 million to $900 million.

U.S. District Judge Miriam Goldman Cedarbaum, who sentenced Greenwood, told him to forfeit another $83.5 million. He has until February 9, 2015 to report to prison. Prosecutors told the judge that Greenwood helped the government with its case. He also assisted a court-appointed receivership in finding around $900 million, which is nearly 90% of investor claims. As part of his plea deal, Greenwood said he would forfeit at least $331 million to the government.

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants

Published on: December 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission claims that two ex-executives at Assisted Living Concepts Inc. committed fraud by listing bogus occupants at certain senior residences to satisfy the lease requirements to run the facilities. The regulator is accusing former CFO John Buono and previous CEO Laurie Bebo of coming up with a scam that included bogus disclosures and manipulation of records and books when it started to look as if Wisconsin-based assisted living provider was going to default on covenants in a lease agreement with Ventas Inc., which is a real estate investment trust.

Per the covenants, ALC was obligated to keep up minimum occupancy rates and coverage rations while running the facilities or otherwise default on the lease. A default would have obligated the company to pay whatever rent was due for the lease’s remainder of term, which would have been tens of millions of dollars.

According to the SEC Enforcement Division, to meet covenant requirements Buono and Bebo told accounting personnel to work out coverage ratios and occupancy rates by factoring in phony occupants. These nonexistent occupants included Bebo’s relatives and friends, in addition to previous and former ALC employees (including some who had been fired and who hadn’t yet been officially hired), as well as a seven-year-old “senior resident.” Without this false information, contends the agency, ALC would have not met convenant requirements by substantial margins for several quarters in a row.

SEC Commissioner Wants Elder Fraud at Top of 2015 Agenda

Published on: November 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Securities and Exchange Commissioner Michael S. Piwowar says that he wants investigations into elder fraud to stay one of the agency’s top priorities in 2015. Financial fraud targeting seniors is costing this demographic big time. According to a 2011 study by MetLife and the Center for Gerontology at Virginia Tech senior financial fraud victims sustain around $2.9 billion in losses yearly.

One of the reasons for this is that older Americans tend to make more vulnerable targets for fraudsters. They are easier to deceive with bogus sales pitches and some of them may suffer from debilitating mental or cognitive illnesses that can make it hard for them to know they are being bilked.

Also, scammers like to go after elder investors because many of them have accumulated enough retirement money that they have significant funds that fraudsters can steal. Unfortunately, a senior that is the victim of elder financial fraud may no longer have the time or be at an age when he/she can earn back whatever is lost, which can make his/her retirement years a struggle.