Investor Lawyers Blog

Securities Fraud: Fast Food Restaurant Employees Allegedly Posed as SEC Employees to Bilk Investors, Chicago Investment Adviser Pleads Guilty to Defrauding Senior Investors, and Man Awaiting Real Estate Investment Fraud Sentence is Arrested While Trying to Leave the US

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

Two Fast Food Restaurant Workers are Accused of Impersonating SEC Employees
Frank Gregory Cedeno and Leonel Alexis Valerio Santana, two employees at a Florida restaurant, are accused of pretending to be SEC employees who tried to get at least 95 investors to give pay them $1.3M. The men are charged with wire fraud and conspiracy.

According to the criminal complaint, Cedeno and Santana targeted investors of binary options, in particular those that bought them from Banc de Binary and other entities that had been the subject of lawsuits brought by US regulators. For example,in 2016, Banc de Binary settled with the SEC and the CFTC for $11M allegations that they illegally solicited US investors via its trading platform. But even as early as the year before that, prosecutors contend, Banc de Binary securities buyers began receiving calls and emails from supposed SEC employees wanting money related to these investments. Investor targets were purportedly told that they would have to pay money to get part of the Banc de Binary settlement. More than two dozen people reportedly gave the scammers over $235,000 collectively.

Chicago Investment Adviser Arrives at Plea Agreement in Senior Fraud Case
Daniel Glick, a former investment advisor, has pleaded guilty to wire fraud. Per the plea deal, Glick bilked clients of at least $5.2M and lied to them about their money. The majority of his victims were older investors, including his in-laws and a nursing home resident.

CFTC and Massachusetts Regulator Accuse Bitcoin and Cryptocurrency Operators of Selling Unregistered Securities

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

The US Commodity Futures Trading Commission has filed civil cases against virtual currency operators CabbageTech, Entrepreneurs Headquarters Ltd., and My Big Coin Pay Inc. The regulator is alleging fraud, misappropriation, misrepresentation, and other unregistered securities allegations. It wants disgorgement, fines, restitution, injunctions, and other remedies.

In the case against CabbageTech, doing business as Coin Drop Markets, and its owner Patrick K. McDonnell, the Defendants are accused of participating in a virtual currency scam to solicit investor for funds and virtual money, supposedly in exchange for real-time trading advice and the sale and trading of virtual currency under McDonnell’s guidance.

Instead, claims the CFTC, investors received no such advice and they never saw their money again because McDonnell and CabbageTech misappropriated their funds. The regulator believes that the defendants sought to hide their scam by eliminating their online and social media presence and ending communications with customers.

The CFTC’s civil action against McDonnell and his company was announced the same day as its case against The Entrepreneurs Headquarters Limited, which is a company registered in the UK, and founder Dillon Michael Dean. The regulator believes that beginning in April 2017 through now, the defendants solicited at least $1.1M of Bitcoin from over 600 investors, with the promise that the Bitcoin would be turned into fiat currency and invested in a pooled investment vehicle to trade commodity interests.
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HSBC Arrives at $100M Currency Rigging Settlement with DOJ

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

In the US, HSBC Holdings Plc. will pay approximately $100M in penalties to settle a Department of Justice’s criminal probe into currency rate rigging—that’s a $63.1M fine and $38.4M in restitution. The bank’s deal is a three-year deferred prosecution agreement, which means that no criminal charges will be brought as long as HSBC fulfills the terms. As part of the settlement, HSBC will help the government with its criminal probe of individuals who may have played a part in the rate manipulation and enhance its internal controls.

The currency rate rigging allegations involved at least two ex-HBSC employees, including Mark Johnson, the ex-worldwide head of its foreign exchange trading and Stuart Scott, the ex-head of its European currency trading. Johnson has already been convicted in the front-running case involving a $3.5B trade by client Cairn Energy Plc. He is scheduled for sentencing next month. Scott is currently fighting a court order in the UK so as to avoid extradition back to the US to face the criminal charges against him.

Both men are accused of buying British pounds leading up to the Cairn Energy trade, with the expectation that their purchases, and the one by Cairn Energy, would cause the pound’s price to go up. After the Cairn Energy order went through and the value of their pounds rose, the two men sold their currency at a profit.

FINRA Awards more than $4M to Elderly Investors Bilked by Ex-First Allied Securities Broker

Published on: January 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has awarded over $4.3M to investors in their elder financial fraud case against former First Allied Securities broker Anthony Diaz. The plaintiffs contend that he invested their retirement funds in high risk private placement investments that were unsuitable for them. They are alleging inadequate supervision, misrepresentation and omissions, unsuitability, fraud, and other violations.

Diaz is considered to be a rogue broker by the regulator, who barred him in 2015. He not only worked at 11 firms win 14 years, but also he appeared to have no problem getting another job whenever he was let go from a previous. Diaz’s BrokerCheck profile shows that he is named in 53 customer dispute and regulatory disclosures.

The arbitration award to the investors is over $1M in compensatory damages, more than $413K in legal fees, and $2.9M in punitive damages. They settled with First Allied Securities last year.

Investors Continue to Go After Goldman Sachs in the Wake of Abacus CDO-Related Losses

Published on: January 18, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The 2nd U.S. Circuit Court of Appeals in Manhattan has decided that the shareholder lawsuit brought against Goldman Sachs (GS) for its high-risk subprime securities leading up to the 2008 financial crisis cannot move forward as a class action securities fraud case. The court said that a lower court judge had put too much of a burden on the bank by mandating that it prove that the misleading statements and conflicts of interest alleged by the plaintiffs did not affect its stock price. Shareholders, however, are allowed to pursue shareholders class certification again.

The plaintiffs contend that between 2007 and the middle of 2010, they lost over $13B because the Wall Street bank was not forthcoming about being able to deal with certain conflicts. They accused Goldman Sachs of hiding short positions made in a number of subprime mortgage collateralized debt obligations, including the:

Timberwolf
Anderson Mezzanine Funding 2007-1
Abacus 2007 AC-1
Hudson Mezzanine Funding 2006-1

Barclays Capital Trader is Indicted in Massive Front Running Scam

Published on: January 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A criminal indictment has been issued against Robert Bogucki, Barclays’ (BARC) ex-foreign exchange operation head in New York. Bogucki, who is a Barclay’s trader but has been on leave since late 2016, is accused of involvement in a scam to bilk one of the bank’s clients by engaging in front-running. This type of activity usually involves using advance knowledge about an upcoming order and trading in a way to profit from this information.

The criminal charges against Bogucki include multiple counts of wire fraud and a single count of conspiracy to commit wire fraud. His indictment alleges that in 2011, the ex-Barclays forex trader improperly used the information provided by Barclays’ client Hewlett-Packard Company prior to a significant trade. HP had retained the bank to execute the forex transaction, which involved $8.3B of forex options, and that was tied to plans to acquire another company.

Bogucki and others allegedly used the information given to them by HP to manipulate the “volatility’s” price so as to lower the price of the company’s options. The alleged fraud is said to have caused HP millions of dollars in losses.

“Volatility” is the metric that impacts forex options. Barclays is accused of making misrepresentations to Hewlett-Packard so as to benefit the bank.

BitConnect Shutters Its Lending and Exchange Operation, Leaving Texas Investors With No Place to Trade Their BCC Currency

Published on: January 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

BitConnect, an investment lending platform for Bitcoin, has suddenly announced that it is shuttering its lending and exchange operation immediately. The company said that its exchange platform would shut down in five days. In a post on its site, BitConnect said that moving forward, it would operate for “wallet service, news and educational purposes.”

The announcement caused the price of BitConnect Coins (BCC), which is its Bitcoin currency, to plunge by over 90%–from over $400/coin to about $17.25/coin. Now, its investors are left wondering what to do with their coins.

Some site users are claiming that even though the exchange for the BCCs was supposed to stay open throughout the week, they have been unable to process trades because they cannot access the exchange. CoinDesk reports that one investor sent an email, claiming over $400K in losses because of this.

FINRA Cases: Ex-Morgan Stanley Broker and Former Western International Securities Broker Are Barred, Questar Capital Ordered to Pay $797K Restitution Over Mutual Fund Sales, and Morgan Stanley Smith Barney is Accused of Not Sending Millions of Margin Disclosures

Published on: January 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Two Brokers Barred After Not Appearing at FINRA Hearings

Guillermo Valladolid, an ex-Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority. According to the regulator, Valladolid did not show up at a hearing into whether, according to InvestmentNews, he “sold investments away from his employer” and neglected to disclose certain outside business activities.

Morgan Stanley terminated Vallodolid’s employment. Previous to that he worked with Merrill Lynch.

In a different FINRA case, the regulator barred another broker, Bradley C. Mascho, also after he did not appear at his hearing. Some of Mascho’s activities while at Western International Securities had come under question. The firm fired him last month, which is also when the US Securities and Exchange Commission filed fraud charges against Mascho and Dawn Bennett of the Bennett Group Financial and DJP Holdings. Mascho was CFO of the latter.

US Supreme Court to Hear Challenge Against SEC Over In-House Judges

Published on: January 12, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Supreme Court has agreed to hear the appeal of an investment adviser who is challenging the liability findings against him in a securities fraud case presided over by a US Securities and Exchange Commission (SEC) administrative law judge. Raymond Lucia, also a former radio host, was accused of misleading prospective investors about his “Buckets of Money” investment strategy by claiming the methodology he used was back-tested when that was not the case. This created a false sense of security especially among retirees who were told that their money would grow.

An SEC ALJ found him liable for fraud, including that he violated the Investment Advisers Act. Lucia was not only barred from the securities industry but also ordered to pay a $300K fine. He appealed the ruling.

Lucia also questioned whether it was constitutional for the SEC to hire administrative law judges and if they should instead be appointed rather than brought in through human resources. In 2016, The U.S. Court of Appeals for the District of Columbia Circuit turned down Lucia’s appeal, finding that contrary to his contention, SEC judges are not officers with the power to make decisions but are, in fact, employees. Also, the Commission has to approve their rulings.

Securities Fraud: Attorney Ordered To Pay Disgorgement in Alleged $15.8M Investor Fraud, and Investment Adviser Accused of Bilking Professional Athletes Pleads Guilty, as Does Hedge Fund Manager In A Separate Investor Scam

Published on: January 11, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Investment Adviser Accused of Scamming Pro Athletes and Church Members Admits to Securities Fraud
Richard Wyatt Davis Jr., a North Carolina-based investment adviser,has pleaded guilty to tax evasion and securities fraud charges. Davis was indicted for securities fraud, wire fraud, and tax evasion in 2017. He initially pleaded not guilty.

According to the criminal indictment, Davis used investor funds to repay other investors in Ponzi-like fashion, as well as to pay for vacation homes, a personal chef, and other lavish expenses. Investors were solicited at events attended for people who distrusted the banking system and the stock market.

Documents contend that Davis made misrepresentations to more than six dozen investors, costing them about $12.8M as a result. Among his victims were people he knew from church, as well as professional athletes. Of the money that Davis solicited, he paid back investors about $3.5M.