Investor Lawyers Blog

Hedge Fund Managers Settle SEC Charges Accusing Them of Sharing Confidential Investment Information with Each Other

Published on: December 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Nehal Chopra, founder of the hedge fund Ratan Capital Management, and her husband Paritosh Gupta have settled US Securities and Exchange Commission charges alleging that they acted improperly: He, by sharing confidential investment recommendations with her and she, by not disclosing to her clients that her husband was the one who gave her this information.

Gupta worked at Brahman Capital, a hedge fund firm. He later launched Adi Capital Management, also a hedge fund firm. Brahman and Ratan are competitors in their field.

According to the SEC, Gupta provided Chopra with information developed for Brahman’s own clients, as well as the timing of Brahman’s sizes and positions, and he advised her about certain investments. In one example noted by the regulator, Gupta asked his wife about the size of her firm’s position in one security. After she responded, he advised her to increase that position. Ratan would go on to buy more shares that day.

Woodbridge Files For Bankruptcy, Misses Payments Due to Investors

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

Already under investigation by the US Securities and Exchange Commission for financial fraud, the Woodbridge Group of Companies has filed for Chapter 11 bankruptcy protection. According to InvestmentNews, this move comes a week after the luxury real estate developer missed payments due to investors on the notes they had purchased.

The company has raised over $1B from investors, including senior investors. InvestmentNews reports that many investors were told that their investments would be safe in real estate. Now, however, Woodbridge is saying that it has $750M of debt. Court documents submitted in US Bankruptcy Court state that this is how much nearly 9000 noteholders are owed.

Woodbridge Wealth sells the following investments: first positions in commercial mortgages, secondary market annuities, and a commercial bridge loan. However, reports InvestmentNews, the Financial Industry Regulatory Authority’s BrokerCheck doesn’t show any registered brokerage firm by that name.

Ex-Illinois Mayor Accused in $5.2M Municipal Bond Fraud

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

David Webb, the ex-Illinois mayor of the city of Markham, has agreed to partially resolve fraud charges brought by the SEC accusing him of involvement in a $5.5M municipal bond scam. The regulator accused Webb of taking part in a pay-to-play scheme that involved a $75K bribe from a construction contractor. In return, Webb is accused of directing one of the city’s construction projects to the contractor. The alleged fraud involved a $5.5 muni bond offering that the city offered in 2012.

According to the Commission’s complaint, at a Markham council meeting that year, talks took place to authorize the $5.5M of general obligation bonds to help pay for certain city projects. It was during this conversation that an attendee spoke out saying she’d heard that the owner of a roller rink stood to “improperly benefit.” The owner of the rink was Markham’s city attorney at the time and the roller ring was one of the city projects involved. Webb, however, responded by saying “I don’t make deals” even though he purportedly had recently been paid the bribe to the construction contractor. The regulator claims that the pay-to-play scam involving the city’s Roesner Park development project was already in place.

The bond offering was approved.

Texas REIT UDF Files Lawsuit Accusing Hedge Fund Manager of Damaging False Statements

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

The United Development Funding, a beleaguered Texas real estate investment trust accused of running a $1B Ponzi-like scam, is suing a hedge fund manager for the allegedly “false and disparaging” statements that led to the fraud allegations.

The REIT came under fire two years ago after an investor website issued a report accusing UDF IV of being run like a Ponzi scam. For the last two years, our Texas securities fraud lawyers at Shepherd Smith Edwards and Kantas LTD, LLP has been fielding calls from investors who suspect they may have suffered financial losses from investing in UDF Funds.

According to UDF’s complaint, filed in Dallas County, hedge fund manager Kyle Bass and his Hayman Capital Management are the ones that anonymously published the Ponzi allegations online and then later on a proprietary site. They allegedly did this to damage the UDF Funds.

In its filing with the US Securities and Exchange Commission about the complaint, the REIT accused the defendants of engaging in “false and disparaging statements,” including that: the UDF Funds were part of a Ponzi fraud, they were unable to run their own business, had insolvency problems that made their shares “worthless,” their real estate developments that were “not genuine,” and they “misappropriated” investors’ funds. The filing countered that the UDF Funds were “successful” and had actual real estate developments. The REIT claims that because Bass had set up a “large short position” in the Texas REIT before publishing the false allegations, he and his company “profited” from the damages wreaked by their claims.

Bass had a short position in the REIT. Once he disclosed this news, United Development Funding shares plunged in price. In response to this lawsuit, the hedge fund manager claims it is meritless.

SEC Awards Two Whistleblowers $16M

Published on: November 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commision has awarded $16M to two whistleblowers—$8M each—for the crucial information and help they provided in bringing a successful securities enforcement action. If you consider that a whistleblower may be eligible for 10-30% of funds collected when the monetary sanctions of the SEC action that the individual helped to bring is greater than $1M, the sanctions imposed in this latest case must have been significant.

According to the regulator, one whistleblower reported a “particular misconduct” that became central to the SEC’s enforcement action. The other whistleblower provided additional key information and continued to cooperate with the agency during its probe. The latter’s contributions reportedly saved the Commission time and resources.

These latest awards bring the amount awarded to SEC whistleblowers—49 of them—to over $175M. Alleged wrongdoers accused in the regulators’ cases have been ordered to pay $1B in financial remedies, including over $671M in disgorgement.

$5.4M Senior Investment Fraud Allegedly Involved Penny Stocks

Published on: November 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In US district court, the Securities and Exchange Commission has filed a complaint accusing two people of senior investment fraud. According to the regulator, Angela Beckcom Rubbo Monaco and Joseph A. Rubbo of Florida bilked investors through offerings involving three of their companies.

The SEC’s complaint said that the two of them raised at least $5.4M from 11 mostly older investors. The money was supposed to go toward growing their entertainment businesses and help them develop the Spongebuddy, which was a “sponge-like” glove. Instead, claims the agency, Monacco and Rubbo misappropriated over $2.6M in investor money to pay themselves and family members, as well as to buy a car and cover other unrelated expenses. They also allegedly used the funds to pay “undisclosed sales commissions” to Steven J. Dykes, who solicited investors through cold calls.

The Commission stated that during the alleged senior investment fraud, all three defendants were not registered with the regulator. The companies owned by Rubbo and Monaco that are said to have been involved are VIP Television Inc., VIP TV LLC, and The Spongebuddy LLC.

Ponzi Scams: DOJ Begins Paying Distributions to Madoff Victims, Real Estate Investment Scam Allegations Lead to Guilty Plea, and SEC Seeks to Shut Down $38M “Ad Packs” Scheme

Published on: November 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

DOJ Begins Distributing Payments to Bernie Madoff’s Victims

Nearly nine years after Bernie Madoff was arrested for running a multi-billion dollar Ponzi scam, the US Department Justice has begun to pay out distributions owed to his victims. The money comes from the Madoff Victim Fund, a $4B fund set up for settlements paid by JPMorgan Chase & Co. (JPM), which was the bank that the Ponzi mastermind used, and the estate of Jeffry Picower, who was one of Madoff’s longtime customers.

This fund will pay back over 24,000 victims some $772M during the first round of distributions. Another fund, which is supervised by bankruptcy court, has already paid out over $10B to investors. Investors who will be paid by from Madoff Victim Fund are those that did not qualify for recovery under the bankruptcy proceedings.

NY Woman Pleads Guilty to Running An Investment Scam

Alisa Adler has pleaded guilty to two counts of wire fraud. Adler is the ex-head of ASG Real Estate Services Group.

FINRA Cases: Craig Scott Capital Expelled Over Excessive Trading Claims, CFD Investments Fined $30K to Resolve Inadequate Supervision Allegations Involving ETFs, and H. Beck Broker is Accused of Making Unsuitable Investment Recommendations

Published on: November 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Craig Scott Capital, LLC Loses FINRA Membership After Its Representatives Are Accused of Excessive Trading

The Financial Industry Regulatory Authority has expelled Craig Scott Capital, LLC over finding that three of the firm’s registered representatives allegedly engaged in excessive trading in the accounts of customers. The self-regulatory organization said that the charges imposed on customers, including markdowns, markups, and commissions, were not in line with the latter’s financial states and goals.

Now, FINRA is holding Craig Scott Capital accountable for the excessive trading, which it described as churning. This type of excessive trading involves making trades in a customer’s account in order to earn a commission.

FINRA is also accusing the firm of not putting into place and enforcing a “reasonable supervisory system” to prevent excessive trading and failing to properly supervise the registered representatives involved in the alleged wrongdoing so these behaviours could have been prevented. The regulator accused Craig Scott’s owners of not taking reasonable action even though they detected the red flags indicating that excessive trading might be taking place.

Ex-Nomura Holdings Manager Gets Prison Time for Insider Trading

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

Avaneesh Krishnamoorthy, an ex-risk manager for Nomura Holdings Inc. in the USA, has been sentenced to three months in prison. Krishnamoorthy pleaded guilty earlier this year to securities fraud related to allegations that he traded on information about Golden Gate Capital LP’s plans to buy NeuStar Inc. He made $48K in the process.

The ex-Nomura risk manager, who was a firm vice president, purchased hundreds of NeuStar shares using an undisclosed brokerage account belonging to his wife. He did this after reading an internal confidential email about the planned purchase. Nomura helped finance the deal.

In September, the US Securities and Exchange Commission announced that a final judgment had been reached in its civil case against Krishnamoorthy. Under the terms of the judgment, the ex-Nomura holdings manager is permanently enjoined from violating sections of the Securities Exchange Act of 1934, rule 10b-5 thereunder, and the Securities Act of 1933. He also is liable for almost $79K of disgorgement that would be considered fulfilled either by submission of a forfeiture order in the criminal case against him or proof of payment. Additionally, the former Nomura VP was ordered to pay more than $1200K in interest and serve permanent bars from involvement in penny stock offerings and the securities industry.

SEC Cases: $15.7M Final Judgment Issued in Ponzi Scam that Touted Loans to Athletes, MicroCap Issuer is Accused of Accounting Scheme, and Company’s Assets are Frozen in the Wake of Alleged $5.3M Offering Fraud

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

Regulator Orders Alleged Ponzi Scammers to Pay $15.7M Plus Interest
In its final judgement against ex-pro football player William D. Allen, Susan Daub, and three entities, the US Securities and Exchange Commission is ordering the defendants to pay over $15.7M in disgorgement of ill-gotten gains in addition to prejudgment interest for an alleged Ponzi scam that raised nearly $32M from investors. Allen, formerly of the Miami Dolphins, and Daub, who both pled guilty to related to criminal charges last year, have been sentenced to six years in prison. They must pay $16.8M in restitution for that action. The SEC’s order will be deemed met “based on the restitution order” in the criminal case.

The SEC’s complaint contends that Daub and Allen and the entities misled investors about the loans, which were supposed to go to professional athletes. Instead, they allegedly used just part of the money to issue the loans while using investors’ funds to cover nightclub and casino expenses, other ventures, and to pay back other investors.

Microcap Issuer and Its Ex-CEO Resolve Investor Fraud Allegations
Integrated Freight Corporation and its ex-chairman/CEO David N. Fuselier have settled SEC charges accusing them of investor fraud. Both Fuselier and the company, however, did not deny or admit to the allegations.