Investor Lawyers Blog

Investment Fraud: Man Who Pretended to be Financial Adviser Pleads Guilty to $13M Scam, Ponzi Fraudster is Accused of Bilking Friends & Coworkers, and Real Estate Scammers Must Pay Back Investors $30M

Published on: March 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Man Accused of Targeting Religious Congregation Members Admits to $13M Fraud

Sung “Laurence” Hong has pleaded guilty to money laundering and wire fraud, as well as to pretending to be an investment adviser so he could bilk clients of almost $13M. His plea agreement states that Hong mostly targeted members of religious organizations.

This is not the first time Hong that was caught for investor fraud. He served three years in prison after defrauding a neighbor of about $800K. Now, he may end up back in jail for decades.

SEC Files Case Against Man Accused in $250K Ponzi Scam

The US Securities and Exchange Commission has filed charges against Niket Shah, who is accused of stealing over $250K from coworkers and friends in a Ponzi scam. The regulator’s case comes in the wake of complaints brought by investors.

HSBC Settles Libor Rigging Lawsuit for $100M

Published on: March 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

To settle a private securities lawsuit in the US alleging Libor manipulation, HSBC Holdings Plc. (HSBC) has agreed to pay $100M. The bank is accused of conspiring to rig the London interbank offered rated (Libor) benchmark. The plaintiffs in the lawsuit are a number “over-the-counter” investors, including Yale University and the Maryland city of Baltimore, that dealt directly with banks belonging to the panel tasked with determining the key benchmark interest rate. Now, a court will have to approve the preliminary settlement.

The plaintiffs sued 16 banks for alleged Libor rigging in 2011. According to their case, HSBC and other banks conspired together to submit artificially low borrowing costs so that they could appear more financially robust and increase earnings. These lower borrowing costs led to a lower Libor, which had an adverse effect on institutions and persons that invested in pension funds, money market funds, mutual funds, the bond market, a number of derivative products, and bank loan funds.

Libor is the benchmark used to establish rates on hundreds of trillions of dollars of transactions, including those involving credit cards, student loans, and mortgages. It also allows the banks to figure out what it would cost them to borrow from one another.

Allegations of FCPA Violations, Inflation Schemes, and Improper Audits Lead to SEC Fraud Cases

Published on: March 29, 2018 | by Shepherd Smith Edwards & Kantas, LLP

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.

Wedbush Securities Faces Failure to Supervise Charges Over Broker’s Pump-And-Dump Scam

Published on: March 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Wedbush Securities Inc. The regulator is accusing the brokerage firm of not supervising registered representative Timary Delorme, 59, and disregarding warning signs that she was involved in a pump-and-dump fraud that targeted retail investors. Delorme has settled the SEC’s charges against her.

According to the SEC, Delorme took part in certain trades to manipulate the stocks. She received benefits, which were paid to her spouse, for getting customers to invest in microcap stocks that were part of a pump-and-dump fraud run by Izak Zirk Engelbrecht, who also has been subject to civil, as well as criminal charges. Engelbrecht, previously called Izak Zirk de Maison before adopting his wife’s last name, is accused of running the scam that involved microcap company Gepco Ltd.

Also, Delorme and her husband are accused of selling shares for Engelbrecht and sending him the money for the sales while she was paid a commission. This purportedly allowed Engelbrecht to hide the sales.

Aegis Capital to Pay Over $1M to the SEC and FINRA to Settle Allegations Involving Low-Priced Securities and Anti-Money Laundering Violations

Published on: March 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

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.

Massachusetts Regulator Accuses ARO Equity of $5.8M Ponzi Scam that Bilked Seniors

Published on: March 26, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin has filed an administrative complaint accusing private equity fund ARO Equity LLC, Timothy James Alcott, and Thomas David Renison of running a Ponzi scam that bilked investors of over $5.8M. Most of their victims were senior investors in their 70’s and 80’s who were allegedly promised 8-12% yearly returns over three-to-five years for their purchase of mostly promissory notes.

According to the Massachusetts Regulator’s complaint, Renison, Alcott, and ARO Equity invested just half of investors’ funds, with most investments made sustaining substantial losses. They allegedly ran their scam out of a trailer park in the city of Peabody despite listing their address at the One International Place Tower in Boston. Meantime, the two men have purportedly paid themselves more than $1M since their alleged Ponzi scam began.

Renison, who allegedly made $710K, was barred from the securities industry by the US Securities and Exchange Commission in 2014 for promissory note fraud involving a client. He was ordered by a jury to pay a $1.4M judgment in that matter. A criminal charge for conspiring to commit wire fraud was brought against him in a parallel case that was dismissed following his cooperation and testimony against a co-conspirator.

Bank of America to Pay $42M to New York Over Fraudulent “Masking” Involving Electronic Trading

Published on: March 24, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America Merrill Lynch (BAC) will pay a $42M penalty to New York State to settle allegations that it engaged in fraudulent practices involving electronic trading services.

According to a press release issued by New York Attorney General Eric Schneiderman, the bank admitted that over five years, it “systematically” hid from clients that it was “secretly routing” their equity securities orders to electronic liquidity providers, including Knight Capital, Citadel Securities, Two Sigma Securities, D.E. Shaw, and Madoff Securities, which then executed the transactions.

Bank of America Merrill Lynch, which is Bank of America’s corporate investment banking division, had “undisclosed” agreements with these providers. Its “masking” strategy was used in more than 16 million client orders that involved over 4 billion shares that were traded.

According to the probe by Schneiderman office, and Bank of America Merrill Lynch’s own admission, starting in 2008, the corporate investment banking division purposely took steps to hide that it was sending a number of equity securities orders made by clients to the electronic liquidity providers. Bank of America Merrill Lynch told investors that the orders were executed “in-house.”

Meantime, it committed fraud by modifying its electronic trading systems to “automatically doctor” the trade confirmation that clients received after these other firms executed the transactions. Internally, Bank of America Merrill Lynch called this action “masking,” which consisted of replacing the electronic liquidity provider’s identity with a code to make it appear as if a trade execution had taken place through the bank instead.

Broker Fraud Allegations Lead to Finra Bars for Northwestern, Fortune Financial, and Morgan Stanley Representatives

Published on: March 24, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred three brokers in separate, unrelated cases for alleged misconduct. They are ex-Morgan Stanley (MS) representative Thomas Alain Meier, ex-Fortune Financial broker Michael Giokas, and ex-Northwestern Mutual broker Michael Cochran.

Former Morgan Stanley broker Thomas Alan Meier is accused of making unauthorized trades in customer accounts. In the self-regulatory organization’s letter of acceptance, waiver, and consent, FINRA stated that from 7/2012 through 3/2016, Meier “effected” over 1000 transactions that were not authorized in six customers’ accounts. His allegedly unauthorized transactions involved discretion without written permission or the accounts garnering discretionary acceptance and impacted four clients.

Between 4/2016 and 10/2017, Morgan Stanley submitted 21 amended Forms U5 for Meier. The forms showed that 14 customer complaints were filed against Meier, including two arbitration cases. AdvisorHub reports that because of Meier’s alleged misconduct, customers sustained $818K in losses and over $2M in unrealized losses. To date, the brokerage firm has paid customers about $2.5M in settlements and resolved 13 of the claims.

FINRA Panel Orders UBS to Pay $204K in Puerto Rico Bond Fraud Claim

Published on: March 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Panel has ruled that UBS must pay claimant Antonio Gnocchi Franco $204,000 in compensatory damages and $66,000 in costs for his Puerto Rico bond fraud case. Franco, a Puerto Rico resident who was also the trustee of his law firm’s pension plan, accused the brokerage firm of negligence, misrepresentation, breach of fiduciary duty, breach of contract, unauthorized trading, unsuitability, overconcentration, failure to supervise, unauthorized use of loan facilities, and unjust enrichment. According to the complaint, UBS had recommended that Franco invest in UBS bond funds and Puerto Rico bonds.

This customer win is yet another in a long line of customer wins against UBS for its investment and brokerage services provided in Puerto Rico. To date, FINRA arbitrators have ordered UBS to pay hundreds of millions of dollars to investors and UBS has paid many hundreds of millions more in settlements. Recently, UBS Puerto Rico and UBS Financial Services lost another Puerto Rico bond fraud case and were ordered to pay five former customers $521,000 in compensatory damages.

In total, UBS has been named in FINRA arbitration claims brought by thousands of investors that lost money from investing in UBS-packaged bond funds and Puerto Rico bonds. UBS Puerto Rico brokers, especially, have come under fire for allegedly recommending customers concentrate their investments in UBS Puerto Rico products, even when they were not suitable for customers in almost any amount. Moreover, many of these investors have alleged that UBS encouraged them to borrow against their own accounts so that customers could invest more. For example, the firm’s financial representatives are accused of advising clients to leverage their accounts and use them as collateral, sometimes for the purposes of purchasing even more UBS investments. This is a practice that should have never happened.

Judge Says Ex-F-Squared CEO Must Pay More Than $13M Related to AlphaSector Strategy and ETF Fraud

Published on: March 22, 2018 | by Shepherd Smith Edwards & Kantas, LLP

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.