Investor Lawyers Blog

SEC Accuses Pennsylvania Broker of $3.2M Securities Fraud Involving 120 Investors

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

The U.S. Securities and Exchange Commission has put out an emergency asset freeze against Peter Kohli, a former broker. According to the regulator, the Pennsylvania resident bilked at least 120 investors when he fraudulently raised over $3.2M from them between 2012 and 2015. The regulator attributes the funds collapse to the ex-broker’s “extreme recklessness.”

At the time, Kohli was CEO and president of DMS Advisors, a dually-registered investment adviser and brokerage firm. He began the DMS Funds series, comprised of four emerging market mutual funds, in 2012. The SEC claims that he overstated the funds’ level of sophistication while disregarding the risk that he and DMS Advisors might not be able to cover certain expenses.

The Commission claims that Kohli stole money from investors as the funds became beleaguered and he committed three other frauds to keep his scam going. He also purportedly misappropriated money he solicited to invest in one of the funds and his accused of drawing in two kinds of investments in Marshad Capital Group, which was DMS advisors’ holding company.

RBS Will Pay NCUA $1.1B in Mortgage-Backed Securities Probe

Published on: September 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland Group (RBS) will settle two civil residential mortgage-backed securities lawsuits for $1.1B. The payment will go to the National Credit Union Administration (NCUA) and resolves claims accusing the bank of selling faulty MBSs to two corporate credit unions, causing their failure. The federal actions were brought in California and Kansas, respectively. This is one of the largest settlements reached in mortgage-backed securities cases brought against banks.

The allegedly toxic RMBSs were sold to Western Corporate Federal Credit Union and the Central Federal Credit Union. By settling, however, RBS is not admitting fault.

It was just last year that Royal Bank of Scotland agreed to pay $129.6M to NCUA to resolve claims over its sale of mortgage-backed securities to Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union. Both are now defunct, too.

The Puerto Rico Retirement System Sues UBS Over Municipal Bonds While 31 Investment Funds and Scotiabank Sue the Territory in Separate Lawsuits

Published on: September 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg, the retirement system of Puerto Rico has joined a lawsuit against UBS Financial Services, Inc. (UBS) for poor returns that the retirement system received on $3 billion the it borrowed on UBS’s recommendation. Six beneficiaries originally brought this Puerto Rico bond fraud case in 2011 against UBS and two smaller broker-dealers.UBS was the underwriter of bonds sold by the judiciary retirement systems and employees eight years ago. UBS also served as investment consultant, adviser, and bond fund manager. The bond proceeds were supposed to earn a positive return as compared to the interest paid on the bonds. According to UBS, this would help Puerto Rico resolve some of its pension shortfall. However, UBS, according to the complaint, put too much of the bond proceeds toward low-yielding accounts that made “negative income.”

Now, Puerto Rico’s pension funds are in financial trouble and could go broke as early as 2018. System administrator Pedro R. Ortiz said that the system’s board is looking to obtain a “significant recovery” for pensioners and participants.

SEC Files Charges in Alleged Microcap Fraud

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

The U.S. Securities and Exchange Commission has filed charges against three men accusing them of defrauding investors in a project that was supposed to build the largest movie studio on the continent in Georgia. They are: Matthew T. Mellon, Manu Kumaran, and Roger Miguel.

According to the regulator, Kumaran, the ex-chairman, CEO and founder of movie production company Moon River Studios, previously called Medient Studios, and his CEO successor Jake Shapiro issued misleading and false statements in corporate filings and press releases. Among their alleged claims is that construction was already happening and there were already projected dates for when the studio would be running even though the two men knew that they didn’t have the money to start building the “Studioplex.”

The two men and Roger Miguel, who was the CEO of Fonu2, are accused falsifying and backdating promissory notes in a scam to put out common stock in return for financing. Fonu2 operated under Moon River Services, Even though the movie studio never became a reality the three men allegedly became rich because of their scam. For example, Shapiro is accused of misappropriating company money for his own spending, including a nearly million-dollar home, and Kumaran allegedl spent about $1700 of company money daily for his travels and personal spending.

Merrill Lynch Ordered to Pay $12.5M to the SEC and $3M to Six Exchanges Over Mini-Flash Crashes

Published on: September 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, a Bank of America Corp. (BAC) unit must pay a $12.5M fine to resolve Securities and Exchange Commission allegations accusing the brokerage firm of having weak controls that led to mini-flash crashes. This is the largest penalty ever imposed for alleged market access rule violations.

According to the SEC, at least 15 times from 2012 to 2014, the bank established internal trading limits that were too high and, as a result not effective. These caused disruptions in the market.

Even though there were red flags, said the regulator, Merrill Lynch purportedly did not adequately assess whether it had controls that were reasonably designed and the brokerage firm did not remedy the issues when they arose fast enough. In one example cited by the SEC, Merrill Lynch purportedly applied a 5-million shares/order limit for one stock that traded at only about 69,000 shares/day. Because of this erroneous orders compelled certain stock prices to drop and then recover abruptly within seconds. For example, nearly 3% of Google’s stock dropped in under a second.

Ex-Investment Adviser and Talk Show Host Once Again Takes Industry Ban Against Him to the Appeals Court

Published on: September 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Three years after the U.S. Securities and Exchange Commission barred Ray Lucia Sr. from the securities industry, the ex-investment adviser and radio talk show host is still seeking to overturn that decision. Last week, he filed a petition asking the U.S. Court of Appeals for the D.C. Circuit to hear his case again.

It was just last August that the appeals court heard his petition but refused to review and vacate the SEC ruling. His latest petition was submitted en banc, which could allow all 11 members of the appeals court to refuse to hear the case or decide to do so and issue a vote.

Lucia, who once touted a “buckets of money” investment strategy for retirement was barred after an SEC administrative law judge found that the ex-investment adviser misled investors about the strategy’s approach to growing retirement assets. According to the regulator, the inflation rates Lucia employed to “back-test” his strategy failed to factor in the historical inflation rates during the time periods that were supposedly relevant.

FINRA Expels DT Securities and Its CEO Over Alleged Private Placement Misrepresentations

Published on: September 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has expelled the real estate firm formerly called DT Securities and its owner/CEO Markel Newton. According to the regulator, DT Securities and Newton engaged in negligent misrepresentations involving private placements. Markel is also barred for alleged violations involving two of the firm’s offerings to purchase real estate in Georgia and Florida, as well as a third one involving alcoholic treatment facilities in California.

According to FINRA, in the private placement offerings Fresh Start, DT Atlanta, and DT Florida, Markel and DT Securities should have disclosed that the California Department of Real Estate had submitted a complaint against him in 2010.

The complaint against Markel and DT Ventures Real Estate Investments accused them of performing certain activities without the required real estate license, as well as making misrepresentations about deposits made for purchase to sellers. In 2011, Markel consented to a 30-day suspension.

In addition to accusing Markel of not alerting the state, FINRA also accused Markel of improperly releasing escrow proceeds to purchase properties prior to satisfying funding-raising goals that were delineated in two of the private offerings. The settlement document said that although DT Florida had originally aimed to raise at least $3M by the end of November in 2009, that closing date was extended to 1/29/10. The funds were to go back to investors if that figure wasn’t achieved. The private placement offering put into effect by DT Atlanta in 2011 came with the goal to raise a minimum of $1.7M—a figure that was later lowered to $400K. That lower figure was reportedly never properly fulfilled.

SEC Charges Ex-Microcap CEO and Boiler Room Operator in $20M Penny Stock Fraud to Bilk Senior Investors

Published on: September 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging ex-Samoyedic’s Inc. and Fun Cool Free Inc. founder Craig V. Sizer and boiler room operator Miguel Mesa with involvement in a $20M penny stock scam to bilk senior investors and others. At least 600 investors were allegedly victimized in the fraud. The two men have consented to partial settlements of the civil charges accusing them of violating broker-dealer registration and anti-fraud provision of federal securities laws. However, they are not admitting to or denying the claims.

According to the Commission, Sizer hired Mesa to draw in and bilk investors in both his companies. Mesa ran boiler rooms in California and Florida. Sizer gave Mesa pitch points for boiler room agents to use when selling stock shares. The points included alleged misrepresentations, including that investor money would go toward development and research but not toward commissions. Sizer also purportedly solicited investors by phone using the same misrepresentations and omissions to sell company shares.

Unfortunately, contends the regulator, the two men misappropriated about 90% of the money raised for their own enrichment and to pay the agents their sales commissions of 15-20%. Sizer is accused of using at least $3M on his own spending.

Aozora Bank Asks NY Appeals Court to Revive $1.5B CDO Fraud Case Against Credit Suisse

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

Aozora Bank Ltd. has asked a New York appeals court to allow it to sue Credit Suisse (CS) again over losses that it claims it sustained from a $1.5B collateralized debt obligation. The Japanese lender claims that a lower court erred in dismissing the claims it had previously brought on the grounds that they were submitted too late.

It was last year that New York Supreme Court Judge Charles E. Ramos threw out the CDO fraud lawsuit on the grounds that the state’s statute of limitations had already passed. In New York, fraud claims can be brought within two years from when a plaintiff could have, with reasonable diligence, realized that it was defrauded or within six years of when a transaction had closed.

Aozora believes that Credit Suisse employed a “trash bin” for its assets that were toxic. The Japanese lender purchased the Jupiter High-Grade CDO V Ltd CDO notes for $40M on 5/11/07 but did not file it’s case until 6/26/13. Ramos said that Aozara failed to prove that there was no way it could have discovered the problems with the Jupiter V notes that it purchased from Credit Suisse before that filing date.

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FINRA Sanctions Avenir Financial Group For Fraud

Published on: September 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has ordered Avenir Financial Group to pay a $229K fine over allegations that the latter engaged in the fraudulent sale of promissory notes and equity interests in the firm. Avenir is suspended from taking part in the self-offerings of securities for two years.

According to the FINRA hearing panel, the firm, its ex-CEO/CCO Michael Todd Clements, and registered representative Karim Ahmed Ibrahim, also known as Chris Allen, purposely omitted or misrepresented material facts related to the sale of equity interests in the firm. Avenir is accused of making misrepresentations when selling debt and equity interests in the holding company of its branch office.

The FINRA ruling said that in 2013, Avenir solicited investors through funds via an equity self-offering because the firm needed capital. The self-regulatory organization said that Clements told Ibraham to tell customers that this money would go toward day-to-date operations and growth at Avenir but did not tell him about the firm’s financial issues and certain other information.