Shane Fleming Charged with Insider Trading
On September 29, 2017, the Securities and Exchange Commission charged Shane Fleming, a middleman tipper, and six traders with insider trading ahead of the announcement that the company would be purchased and taken private.
In a complaint filed in U.S. District Court in the Northern District of Illinois, the SEC alleges that Shane Fleming a former vice president of sales at Life Time Fitness, learned of the merger discussions on or before Feb. 23, 2015 and tipped his friend and business partner Bret J. Beshey with the understanding that Beshey would use the information to make a profit and split those profits with Shane Fleming. The SEC alleges that rather than trade in his own name, Beshey tipped his friends Christopher M. Bonvissuto and Peter A. Kourtis with the understanding that both men would kick back a portion of their trading proceeds to Beshey. According to the SEC’s complaint, Kourtis tipped his friends Alexander T. Carlucci, Dimitri A. Kandalepas, Austin C. Mansur, and Eric L. Weller, and asked Carlucci, Mansur, and Weller to give him a portion of any profits they made from trading on the information, which they agreed to do. Read More
SEC Charges Michael Scronic with Engaging in Ponzi-like Scheme
On April 4, 2018, the Securities and Exchange Commission charged Michael Scronic with fraud stemming from lies to retail investors about the value of their investments in a Ponzi-like scheme.
The SEC alleges that, starting in approximately 2010, Michael Scronic began to raise money from at least 42 friends and acquaintances, many of whom were from his suburban community, in order to invest in a risky options trading strategy. He allegedly lured investors by informing them that he had a long and impressive track record of proven returns. He also allegedly lied to investors about the liquidity of investments, telling one investor that “what’s cool about my fund is that i’m [sic] only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless.” However, the SEC alleges that Michael Scronic was actually hemorrhaging investor money through massive trading losses, with at least $15 million in investment losses since April 2010. For the period ending June 30, 2017, Michael Scronic allegedly reported to investors total assets of at least $21,837,475. However, the balance in his brokerage account on June 30, 2017 was just under $27,500. Read More
SEC Charges Michael Liberty with Fraudulent Scheme to Defraud Investors and Misappropriate Funds
On April 4, 2018, the Securities and Exchange Commission charged Michael Liberty, the founder of the fintech startup now known as Mozido, Inc., with a fraudulent scheme to trick hundreds of investors into investing in his shell companies instead of Mozido. Michael Liberty and his accomplices then stole most of the more than $48 million raised to fund a lavish lifestyle that included private jet flights, multi-million dollar residences, expensive cars, and movie production ventures.
The SEC’s complaint, filed March 30, 2018, alleges that Michael Liberty, his wife, Brittany Liberty, his cousin, Richard Liberty, Paul Hess, and attorney George Marcus induced investors to purchase unregistered interests in shell companies controlled by Michael Liberty that supposedly owned transferable interests in Mozido. In reality, the shell companies either did not own, or were not permitted to transfer, interests in the company. The SEC also alleges that Michael Liberty and his accomplices lied to investors about Mozido’s valuation and finances, the amount Michael Liberty had personally invested in Mozido, and the use of their funds. According to the complaint, Michael Liberty and his accomplices later orchestrated a series of transactions in which they used the investors’ own money to heavily dilute their interests and duped investors into trading securities for those worth more than 90% less. Read More
Court Grants Summary Judgment Motion against Iftikar Ahmed
On March 29, 2018, a federal district court in Connecticut granted the SEC’s motion for summary judgment as to the liability of Iftikar Ahmed alleged to have fraudulently diverted money from the venture capital funds he advised.
The SEC’s action alleges that Iftikar Ahmed, formerly a general partner at a venture capital firm with offices in Connecticut, used fraudulent and deceptive means to divert into his personal bank accounts more than $67 million from ten different venture capital investments. In its ruling on the SEC’s summary judgment motion, the court found that, with respect to each of the ten investment deals, Iftikar Ahmed violated certain anti-fraud provisions and related rules of the Investment Advisers Act of 1940, the Securities Exchange Act of 1934 and/or the Securities Act of 1933. In the same ruling, the court also denied summary judgment motions filed by Iftikar Ahmed and relief defendants. Read More
SEC Charges Amrit Chahal with Fraud
On April 16, 2018, the Securities and Exchange Commission charged Amrit Chahal with orchestrating an investment scheme over several years.
The SEC’s complaint alleges that, from at least February 2015, Amrit Chahal, of Fairfax, Va., used his company, Kane Capital Investment Group, LLC, to fraudulently solicit approximately $1.4 million from about 50 individuals, including friends and family members. According to the complaint, Amrit Chahallured investors by falsely claiming to be an experienced and successful trader who could generate above-market returns for clients through a low-risk trading strategy. The SEC alleges that, in reality, Amrit Chahal had substantially no experience working in the financial or securities industry or trading securities on behalf of clients. The complaint further alleges Amrit Chahal initially invested client funds in a variety of investments, but suffered significant trading losses. According to the complaint, instead of disclosing the losses, Amrit Chahal lied to his clients about their investment returns, continued raising funds, then used the money for his personal benefit, including to pay for his luxury car, rent, travel, dining, and other living expenses, and to make Ponzi-like payments to earlier investors. Read More
SEC Detects William Gennity and Rocco Roveccio Defrauding Customers
On September 28, 2017, the Securities and Exchange Commission charged William Gennity and Rocco Roveccio with making unsuitable recommendations that resulted in substantial losses to customers and hefty commissions for the brokers. One of the brokers agreed to pay more than $400,000 to settle the charges.
Brokers must make recommendations that are compatible with their customers’ financial needs, investment objectives, and risk tolerances. An SEC examination of the firm Alexander Capital L.P. detected potential misconduct among certain brokers, and the ensuing investigation has led to the filing of an SEC complaint against William Gennity and Rocco Roveccio. The SEC also issued an order against Laurence Torres.
The SEC’s complaint alleges that William Gennity and Rocco Roveccio recommended investments that involved frequent buying and selling of securities without any reasonable basis to believe their customers would profit. According to the complaint, since customers incur costs with every transaction, the price of the security must increase significantly during the brief period it is held in an account for even a minimal profit to be realized. Read More
Christopher Lollar Settles Charges of Insider Trading Ahead of Oil Discovery Announcement
On April 4, 2018, Christopher Lollar has agreed to settle SEC charges that he conducted insider trading ahead of a market-moving announcement about the company’s discovery of a significant new oil source.
The SEC alleges in its complaint, filed on November 1, 2017, that Christopher Lollar traded on nonpublic information while working in the company’s San Antonio office that was performing the geologic and geophysical work to explore and develop the newly-discovered resource play called Alpine High. Christopher Lollar allegedly conducted trades in Apache shares and call options in the days and weeks leading up to the company’s Alpine High announcement on Sept. 7, 2016. The value of Christopher Lollar ‘s brokerage account skyrocketed approximately 2,700 percent after the announcement, and his alleged profits from insider trading totaled $214,295.07. Read More
Beware of Custodianship Shells and Reverse Mergers
The Securities and Exchange Commission (“SEC”) says it doesn’t like over-the-counter shell companies especially when reverse mergers are involved, and would like to see them gone from the marketplace. To that end, its Enforcement Division cooked up an initiative it called “Operation Shell-Expel”. It began with a bang on May 14, 2012, when the agency coupled an announcement of Operation Shell-Expel with the suspension of trading in the stock of 379 dormant penny companies. It was, the SEC said, the largest such action in agency history. If Operations Shell Expel was such a priority to the SEC why is that we were able to locate more than 700 dormant public companies in the state of Nevada with minimal effort? What danger do these sorry companies present and if they are so dangerous why are there so many dormant shell companies still out there being fraudulently taken over?
The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors. But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.
The shells were “rendered essentially worthless” because the suspension meant they’d be delisted to the Grey Market, the graveyard of bad pennies, in which market makers are forbidden to publish quotes.
Critics of rampant abuse in the OTC market cheered the SEC on, hoping Operation Shell-Expel signaled a new, and far less tolerant, attitude toward dormant shells that were often serially pumped and dumped. The following June, the agency suspended trading in another 61 issuers, and in February 2014, it followed up by shutting down another 255 shells. The hammer came down on 128 more in March 2015. There’s been no similar action in 2016. At the time of the 2015 suspensions, Enforcement director Andrew J. Ceresney remarked, “We are getting increasingly aggressive and adept at ridding the microcap marketplace of dormant shells within a year of the companies becoming inactive.” Many market participants see the SEC’s failure to pursue corporate hijackers of dormant shells as one of the greatest enforcement failures of the penny stock markets in the last decade. We have identified hundreds of hijacked tickers and/or companies involving fraudulent state court actions such as with minimal effort yet these types of shell companies continue to be hijacked by two or three penny stock law firms who assist the hijackers or sell the vehicles to unsuspecting companies seeking public company status. Our research reveals these shells have been used as the vehicles for many of the largest and most publicized securities fraud cases pursued by the Department of Justice and SEC. Yet there are at least 740 of these companies domiciled in the state of Nevada alone.
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Going Public Bootcamp – Going Public Attorneys – Securities Lawyer 101
The going public process involves a number of steps that vary depending on the characteristics of the private company wishing to go public, and whether it will become subject to the Securities and Exchange Commission (“SEC”) reporting requirements. Companies seeking public company status must meet certain SEC requirements before its securities can be publicly traded. This applies to reporting and non-reporting issuers. A going public lawyer can assist the issuer in complying with the SEC’s requirements.
Shareholder Requirements in Going Public Transactions
The first step in a going public transaction is most often obtaining the number of shareholders required by the Financials Industry Regulatory Authority (FINRA). The shares issued to them must be unrestricted at the time of the filing of the Form 211 with FINRA, so that a public float will exist when the company’s stock begins trading.
SEC Obtains Final Judgment Against Vincent Cassano Charged with Fraudulent Stock Promotion Scheme
On April 10, 2018, the U.S. District Court for the Western District of Washington entered a final judgment against Vincent Cassano for his role in a fraudulent stock promotion scheme. According to the SEC’s complaint, Lidingo Holdings, LLC hired writers like Vincent Cassano to publish hundreds of bullish articles on its clients, which appeared to be independent research pieces but, in fact, were paid advertisements.
The final judgment permanently enjoins Vincent Cassano from violating Sections 17(a) and 17(b) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Vincent Cassano consented to the entry of the final judgment, and neither admitted nor denied the allegations in the SEC’s complaint. Read More
JH Darbie Charged in Calissio Resources Scam – Securities Lawyer 101
On March 27, 2018, the Securities and Exchange Commission (SEC) announced a settled administrative proceeding against broker-dealer J.H. Darbie & Co., Inc., and Robert Y. Rabinowitz, Darbie’s majority owner and CEO. On its surface, the suit is both simple and unexciting: between September 2015 and July 2016, Darbie operated with a net capital deficiency, and failed to record it properly. It therefore violated Section 15(c)(3) of the Securities Exchange Act of 1934, which provides that broker-dealers “at all times have and maintain net capital” no less than the greatest of the minimum requirement applicable to its business. But the legal action is related to several others involving a variety of unsavory players in the penny stock world.
Darbie is a small New York firm that’s been sanctioned by its regulator, the Financial Industry Regulatory Authority (FINRA), a number of times. In 2015, it and Wolf A. Popper, Inc., a brokerage controlled by Rabinowitz and Wolf Popper, were the subjects of a complex FINRA enforcement action involving violations that had taken place between 2008 and early 2014. According to FINRA, the violations were mostly Darbie’s; the firm had, the regulator said, “facilitated the deposit and liquidation of billions of shares of low-priced, microcap stocks for customers without having in place adequate procedures to assure that such liquidation transactions were scrutinized sufficiently.” Read More
William Schantz and Verto Capital Management LLC Settle Claims for Additional Investments in Scheme Involving Life Settlements
On February 27, 2018, the United States District Court for the District of New Jersey entered an amended judgment against Verto Capital Management LLC and William Schantz, of Moorestown, New Jersey. Verto Capital Management LLC and William Schantz had previously agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier promissory note investors, tapped investor funds for William Schantz’s personal use, and made misrepresentations to investors about the safety of the notes and life settlement collateral underlying them. As reflected in the amended judgment, Verto Capital Management LLC and William Schantz have agreed to pay an additional $620,594 to cover investments that were identified after the initial judgment and to correct the amount of interest owed to some investors on certain notes. Without admitting or denying the allegations, Verto Capital Management LLC and William Schantz consented to this additional relief as well as the pledge of a policy and property to repay investors. A Fair Fund has been created and has been returning money collected in the settlement to harmed investors. Read More
SEC Charges Charlie Chen and Shui Foon Mok in Multi-Year Trading Scheme
On April 5, 2018, The Securities and Exchange Commission charged Charlie Chen for making an extraordinarily profitable series of unlawful trades in the securities of Massachusetts-based VistaPrint, N.V.
According to the SEC’s complaint, Charlie Chen used private information obtained directly or indirectly from a VistaPrint insider to place illegal trades in advance of eight VistaPrint quarterly earnings announcements over a two-year period. Each time, Charlie Chen’s trades were consistent with the news – whether good or bad-in VistaPrint’s pending earnings announcements. On some occasions, Charlie Chen placed extremely aggressive bets, wagering a substantial portion of his retirement savings on risky VistaPrint options before the company’s announcement of disappointing earnings results in April 2014. Charlie Chen generated approximately $390,000 on the April 2014 trade and more than $900,000 in illicit profits over the course of the scheme.
In addition to detailing Charlie Chen’s uncannily successful pattern of trading, the SEC also alleges that upon being questioned by the Federal Bureau of Investigation, Charlie Chen claimed that he did not know anyone who worked at VistaPrint and falsely denied having a close relationship with a VistaPrint insider and her husband with whom he had vacationed. Read More
Mohammed Rashid Charged With Secretly Billing Clients for His Vacations and Salon Visits
On October 25, 2017, the Securities and Exchange Commission charged Mohammed Rashid, a former senior partner at Apollo Management L.P., with defrauding his fund clients by secretly billing them for approximately $290,000 in personal expenditures, including his family vacations, visits to a hair salon, and purchases of designer clothing and high-end electronics.
The SEC’s complaint alleges that Mohammed Rashid falsely claimed that certain individuals accompanied him to dinners to make it appear his various personal expenses had a business purpose, and he doctored a receipt in an effort to justify his purchase of a $3,500 suit for his father as a business expense. Read More
Which Companies Are Eligible for Regulation A + Offerings?
A correctly designed Regulation A Offering Program can minimize your financial risk and significantly enhance your ability to raise money, but not how you may think. Both issuers and selling shareholders can benefit from Regulation A +. A few of the many benefits of Regulation A + include:
- You can aggressively advertise your Regulation A+ Offering over social media and elsewhere in all 50 states BEFORE you spend any money to prepare and file a Form 1-A. As a side note, you may want to consider a small Crowdfunding Regulation CF offering to start as that will tell you accurately whether potential investors will actually buy your stock at the price you set, which you cannot do under A+
- You do not have to register your A+ Offering by making separate state “Blue Sky” filings, meaning you are free to advertise sell your A+ Offering in all 50 states, even in states that have “merit review.” An S-1 offering, on the other hand, requires separate registrations in every state, making it practically impossible to sell. Think how well this A+ Offering structure works if you want to sell stock from your website not only to potential investors but also to your customers and visitors to your website!
Regulation A+ -v- Form S-1 Registration By: Regulation A Attorneys
Almost three years ago, the SEC radically changed Regulation A for smaller companies desiring to raise money by going public. This seismic shift is called Regulation A+. In this blog post, we will explain how new Regulation A+ can work for you, making it easier to raise money and significantly lowering costs of going and staying public.
However, let’s first examine just how Regulation A+ changed the Raising Money world compared to the filing a Registration Statement on Form S-1.
A correctly designed A+ Offering Program can minimize your financial risk and significantly enhance your ability to raise money, but not how you may think. The disclosure standards and SEC review process for A+ and S-1 are essentially the same. But there are other significant differences, as follows.: Read More
SEC Charges Marc Tager and Jersey Consulting with Defrauding Investors in “Soil Remediation” Scam
The Securities and Exchange Commission announced charges against Marc Andrew Tager and Jersey Consulting LLC, a Utah-based company and several solicitors of the company’s securities in an ongoing offering fraud that has already targeted more than 80 individual investors.
The SEC’s complaint, filed in federal district court in Salt Lake City, Utah, alleges that, since September 2014, Marc Andrew Tager of Utah and his company, Jersey Consulting LLC, have engaged in the fraudulent offering of unregistered Jersey securities and employed paid telemarketers to raise at least $6 million from investors located across the U.S. None of the telemarketers-Suzanne Aileen Gagnier, Kenneth Stephen Gross, Jeffrey Rowland Lebarton, and Jonathan Edward Shoucair-are registered to sell securities. According to the complaint, Jersey investors were promised extraordinary returns of 100% or more within 12 months from the application and licensing of Jersey’s “soil remediation” technology, and were misled about the commercial viability of Jersey’s technology and Jersey’s purported rights to a “mineral rich” claim in Arizona. Jersey in fact had no rights to the claim and its technology was not commercially viable. Jersey also failed to disclose Tager’s prior felony conviction and that investor funds were diverted to pay for Tager’s personal expenses, including the purchase of a Harley-Davidson motorcycle. Read More
SEC Charges Beaufort Securities for Manipulative Trading in Microcap Penny Stocks
On March 2, 2018, the Securities and Exchange Commission The SEC announced securities fraud charges against Beaufort Securities, a U.K.-based broker-dealer and its investment manager in connection with manipulative trading in the securities a U.S.-based microcap issuer. The SEC also announced charges against HD View’s CEO, another individual, and three entities they control for manipulating HD View’s securities as well as the securities of another microcap issuer, West Coast Ventures Group Corp. The SEC further announced the institution of an order suspending trading in the securities of HD View. The SEC also announced charges against HD View’s CEO, another individual, and three entities they control for manipulating HD View’s securities as well as the securities of another microcap issuer, West Coast Ventures Group Corp. The SEC further announced the institution of an order suspending trading in the securities of HD View.
These charges arise in part from an undercover operation by the Federal Bureau of Investigation, which also resulted in related criminal prosecutions against these defendants by the Office of the United States Attorney for the Eastern District of New York.
In a complaint filed in the U.S. District Court for the Eastern District of New York, the SEC alleges that Beaufort Securities Ltd. and Peter Kyriacou, an investment manager at Beaufort, manipulated the market for HD View’s common stock. The scheme involved an undercover FBI agent who described his business as manipulating U.S. stocks through pump-and-dump schemes. Kyriacou and the agent discussed depositing large blocks of microcap stock in Beaufort accounts, driving up the price of the stock through promotions, manipulating the stock’s price and volume through matched trades, and then selling the shares for a large profit. Read More
What SEC Disclosure Is Required By Section 17(b) For Investor Relations Firms?
Section 17(b) of the Securities Act of 1933 requires anyone who advertises a stock, even if he does not purport to offer the security for sale to disclose the “consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, the receipt, whether past or prospective, of such consideration and the amount thereof.”We are often contacted by investors, stock promoters and investor relations firms about the disclosures that must be provided in promotional websites, emails and other investor relations materials.
Section 17(b) disclosure is not sufficient to satisfy disclosure obligations under all circumstances. Investor relations firms must also be aware of the requirements of the CAN-SPAM Act and SEC prohibitions against stock scalping activity. Read More
Americrude Charged by SEC – Posted by Brenda Hamilton, Securities Attorney
On March 8, 2018, the Securities and Exchange Commission charged Americrude, Inc. a Dallas-based oil-and-gas company and two of its executives with defrauding investors out of at least $950,000 through a string of fraudulent oil-and-gas securities offerings.
The SEC’s complaint alleges that Shezad Akbar used his company, Americrude, Inc., to defraud multiple investors in seven securities offerings that purportedly raised funds to acquire working interests in oil-and-gas prospects. The SEC alleges that Americrude, Akbar, and Daniel Waite, who was Americrude’s nominal President, used a combination of cold calls, high-pressure sales pitches, and false and misleading statements to lure investors into Americrude’s fraudulent offerings. The defendants misrepresented Americrude’s track record, the reserve potential of its oil-and-gas prospects, and its intended use of proceeds from the offerings. Akbar is also alleged to have used an alias to conceal his involvement in the offering fraud and to hide his prior felony convictions from potential investors. Read More
SEC Charges Elizabeth Holmes and Theranos Inc – Securities Lawyers
On March 14, 2018, the Securities and Exchange Commission charged Elizabeth Holmes and Silicon Valley-based private company Theranos Inc., with raising more than $700 million from investors through an elaborate, years-long fraud scheme in which they exaggerated or made false statements about the company’s technology, business, and financial performance. Theranos and Elizabeth Holmes have agreed to resolve the SEC charges against them. Importantly, in addition to a penalty, Holmes has agreed to give up majority voting control over the company, as well as to a reduction of her equity which, combined with shares she previously returned, materially reduces her equity stake.
The SEC complaints allege that Theranos, Elizabeth Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry. In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others. Read More
SEC Charges Jon E. Montroll and Bitfunder with Bitcoin Fraud
On February 21, 2018, the Securities and Exchange Commission charged a former bitcoin-denominated platform known as BitFunder and its operator with operating an unregistered securities exchange and defrauding users of that Bitcoin exchange. The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities.
The SEC alleges that BitFunder and its founder, Jon E. Montroll, operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins. The SEC also alleges that Montroll sold unregistered securities that purported to be investments in the exchange and misappropriated funds from that investment as well in connection with BitFunder. Read More
SEC Charges Niket Shah and Spark Trading for Targeting Retail Investors
On March 23rd the Securities and Exchange Commission announced charges and a preliminary injunction and asset freeze against Niket Shah, a New Jersey resident who it alleges stole more than $250,000 in a Ponzi scheme in which his friends and coworkers invested.
Based on investor complaints, the SEC moved quickly to investigate and charge Shah. According to the SEC’s complaint, unsealed on March 22, 2018, in federal court in Brooklyn, New York, Shah used Spark Trading Group, LLC to defraud more than 15 investors into contributing hundreds of thousands of dollars to two funds that Shah marketed. Shah obtained investments for the funds by lying about his success as a trader, Spark Trading’s returns, and how he intended to use investors’ money, including altering financial statements to make the funds appear profitable when they were actually losing money. For instance the complaint alleges that Shah promised investors he would pay them monthly returns and guaranteed against losses. According to the complaint, Shah misused investor money for his own benefit and suffered substantial losses on the amounts actually invested. When investors sought their money back, he lied and said the money had been frozen by government agencies, including the Commission. Read More
EDGAR Filer, Robert W. Murray Sentenced to Two Years in Fitbit Stock Manipulation Scheme
On March 9, 2018, Robert W. Murray was sentenced to two years imprisonment in connection with a scheme to manipulate Fitbit securities through false filings on the SEC’s EDGAR system. Murray pled guilty on November 7, 2017.
The criminal charges against Murray arose from the same conduct alleged in the complaint the SEC filed on May 19, 2017, the same day the criminal charges were announced. According to the SEC’s complaint, Murray allegedly purchased Fitbit call options just minutes before a fake tender offer that he orchestrated was filed on the SEC’s EDGAR system purporting that a sham company sought to acquire Fitbit’s outstanding shares at a substantial premium. Fitbit’s stock price temporarily spiked when the tender offer became publicly available on Nov. 10, 2016, and Murray sold all of his options for a profit of approximately $3,100. Murray took steps to conceal his identity and actual location, including using an alias to create an email account and using an IP address registered to a company located in another state.
SEC Charges McKinley Mortgage with Scheme to Defraud – Posted by Brenda Hamilton
One March 22nd the Securities and Exchange Commission announced settled charges against McKinley Mortgage, the operators of a real estate investment business who engaged in a years-long scheme to bilk hundreds of investors – including many retail investors – out of millions of dollars. As a result of the settlement, Defendants will be ordered to return all ill-gotten funds to investors.
The SEC alleges that from 2012 through 2016, Tobias Preston, his brother, Charles Preston, and his son, Caleb Preston, along with their investment advisory entity, McKinley Mortgage Co. LLC (McKinley), raised more than $66 million from approximately 300 investors, most of whom were retail investors, by falsely stating that investments in their fund, Alaska Financial Company III, LLC (AFC III), were secure and that AFC III earned high returns from its portfolio. In reality, AFC III has been insolvent and unable to generate sufficient revenue to meet its interest obligations for years. According to the SEC, although a portion of the funds raised by McKinley Mortgage were invested as promised to investors. However, Tobias Preston misused more than $17 million to fund personal businesses and to pay for personal expenses, and McKinley Mortgage misused an additional $14 million to pay for its own operational expenses. The SEC also alleges that Charles Preston, Caleb Preston, and Accounting Manager Laura Sanford helped hide the fraud by preparing or distributing investor materials with false information and concealing information from AFC III’s auditors. Read More
Court Orders Former F-Squared CEO to Pay Over $13 Million
A federal judge has ordered the co-founder and former CEO of investment management firm F-Squared Investments to pay over $13 million after a federal jury found him liable for making false and misleading statements to investors as the public face of F-Squared.
The SEC charged Present and F-Squared in 2014 with misleading investors about the AlphaSector strategy, the flagship product of F-Squared which Present launched in the wake of the financial crisis. F-Squared agreed to pay $35 million and admit wrongdoing to settle the agency’s charges. After a three-and-a-half week trial, the jury deliberated for less than one day before finding Present guilty on all of the agency’s charges against him. Read More
SEC Charges Robert Ritch in Penny Stock Plan to Pump Stock
On March 9th the Securities and Exchange Commission barred Tobert Ritch, the president of a penny stock company from ever again serving as a public company officer or director after he was caught making false and misleading statements about the company to investors in an effort to increase demand for the stock.
The false statements were removed from the Internet and social media before any dramatic spike in stock price typically seen in pump-and-dump schemes could occur. Following such spikes, fraudsters dump their shares and stop hyping the stock, the price typically falls, and investors lose their money. Read More
SEC Charges Brian Sodi, the Penny Stock “Mailman” With Scalping Investors In Gold Mining Stocks
The Securities and Exchange Commission has charged Brian Sodi, a penny stock promoter based in Florida with defrauding investors in a pair of gold mining stocks by secretly amassing shares before touting the companies publicly. He allegedly sold the bulk of his stock and reaped more than $1.1 million in illicit profits after his promotions caused the share prices and trading volumes to skyrocket.
The SEC’s complaint alleges that Brian Sodi, known in penny stock circles as “Mailman” for his pervasive participation in direct-mailed penny stock promotions, committed a fraud known as scalping. He allegedly disseminated promotions recommending the purchase of the stocks in Southern USA Resources Inc. and Goff Corporation without disclosing he owned shares and planned to sell them through a foreign bank. Sodi also allegedly hid from investors that he was being paid in stock for one of these promotions. According to the SEC’s complaint, Brian Sodi proceeded to unload hundreds of thousands of his own shares to the detriment of other investors who bought in to the hype. The unlawful practice of promoting a stock while secretly selling is known as scalping. Read More
Electronic Transaction Clearing -ETC- Charged With Repeatedly Putting Customer Assets At Risk
On March 19th the Securities and Exchange Commission announced that Electronic Transaction Clearing (ETC), a registered broker-dealer headquartered in Los Angeles, has agreed to settle charges that it illegally placed more than $25 million of customers’ securities at risk in order to fund its own operations.
Among other things, the SEC found that ETC violated the Customer Protection Rule, which is intended to safeguard customers’ cash and securities so that they can be promptly returned if a broker-dealer fails. It requires broker-dealers to maintain physical possession or control of customers’ fully paid and excess margin securities. Read More
Foreign Affiliates of KPMG, Deloitte, BDO Charged in Improper Audits
On March 13th the Securities and Exchange Commission charged foreign affiliates of KPMG, Deloitte & Touche, and BDO for their involvement in audit work that circumvented the full oversight of the Public Company Accounting Oversight Board (PCAOB).
The firms agreed to settle the charges by paying penalties or disgorging their profits from the audits.
According to the SEC’s orders, the Zimbabwe affiliates of Deloitte & Touche and KPMG improperly audited the majority of assets and revenues of a publicly traded company without registering with the PCAOB. The two principal auditors – KPMG’s affiliate in South Africa and BDO’s Canadian affiliate – were registered with the PCAOB but improperly relied upon the work of the two unregistered foreign component auditors to complete their audits of the company. This violated PCAOB standards requiring sufficient analysis and inquiry when using the work of another auditor. Read More
