SEC Complaint

SEC Settles Charges with Former Nomura Managing Director For Securities Fraud

October 9, 2018 | Elizabeth Dalziel

Earlier this month, the Securities and Exchange Commission announced that it had reached a settlement with Ross Shapiro, a former managing director of Nomura Securities International, Inc. (“Nomura”). The SEC filed a complaint against Shapiro and two other defendants, Michael A. Gramins and Tyler G. Peters, in September of 2015. The complaint alleged that between January 2010 and November 2013, Shapiro, Gramins, and Peters made misrepresentations to customers about the prices of residential mortgage-backed securities (“RMBS”) and manufactured housing asset-backed securities (“MHABS”), thereby violating the Securities Act of 1933 and the Securities Exchange Act of 1934.

An RMBS is a security whose underlying assets comprise residential loans. Customers who invest in an RMBS typically obtain payments derived from the interest and principal payments on these loans. Shapiro, Gramins, and Peters provided market information and sold RMBS and MHABS on behalf of Nomura, a FINRA-registered broker-dealer. The customers in question were funds that invested in RMBS.

The SEC’s complaint alleged that Shapiro, Gramins, and Peters made various misrepresentations to customers regarding the prices at which Nomura bought and sold RMBS and MHABS and that they misrepresented the amount of compensation that Nomura would receive for arranging any trades. For example, Shapiro, Gramins, and Peters allegedly deceived customers on numerous occasions regarding how much Nomura paid for RMBS and MHABS. Shapiro, Gramins, and Peters also gave clients the impression that Nomura had paid a higher price for RMBS and MHABS than it actually had. These misrepresentations were usually made via electronic communications such as instant messaging, emails, and online chats.

Lender’s $4.5 Million of Promissory Notes Were Unregistered Securities

May 29, 2018 | Elizabeth Dalziel

A case involving real estate lending illustrates the perils of failing to comply with the securities laws. Last fall the Securities and Exchange Commission filed a complaint against Paul Z. Singer, a Philadelphia-based lender, and his company, Singer Financial Corp. (“SFC”), alleging that from October 2012 to July 2015, Singer, “by and through SFC, raised $4.5 million from at least 70 investors through an illegal and unregistered offering of securities in the form of promissory notes.”

This is not the first time Singer and SFC have been alleged to have sold unregistered securities. The Pennsylvania Securities Commission imposed penalties against SFC in 1997 and Singer and SFC in 2007 for violations of Pennsylvania’s securities laws pertaining to the unregistered offer and sale of securities. Also, the New Jersey Bureau of Securities imposed a $5,000 fine against SFC in 2010 for selling unregistered securities. Continue reading ›

SEC Charges Investment Adviser with Distributing False Account Statements to Investors

October 20, 2017 | Elizabeth Dalziel

On October 2, 2017, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Tweed Financial Services, Inc. (“TFSI”), an investment advisory firm, and its proprietor, Robert Russel Tweed (“Tweed”). The SEC’s complaint alleges that TFSI and Tweed “defrauded their clients by misleading them about how their money had been invested and how poorly those investments were performing.” According to the SEC, TFSI and Tweed violated the Investment Advisers Act of 1940 by deceiving their clients.

According to the SEC’s complaint, TFSI and Tweed formed Athenian Fund L.P., a private fund, in 2008. Twenty-four investors placed money in the Athenian Fund, and the fund raised approximately $1.7 million. The Athenian Fund’s private placement memorandum informed investors that money invested in Athenian Fund would be invested in a master fund that “had been established to trade stocks using an algorithmic trading platform developed by acquaintances of Tweed.” However, beginning in March 2010, Tweed transferred all of the Athenian Fund’s assets to another fund. In March 2011, TFSI and Tweed had the Athenian Fund loan $200,000 to a startup software company. The SEC alleged that these two ventures resulted in the Athenian fund losing approximately $800,000. Continue reading ›

SEC Settles Charges with Investment Adviser Over Insufficient Disclosure of Fees

September 6, 2017 | Elizabeth Dalziel

On August 14, 2017, the Securities and Exchange Commission (“SEC”) issued an Order Instituting Administrative and Cease and Desist Proceedings (“Order”) against Coachman Energy Partners, LLC (“Coachman”), an investment adviser, and its owner, Randall D. Kenworthy (“Kenworthy”). According to the SEC’s Order, Coachman “failed to adequately disclose its methodology for calculating the management fees and management-related expenses it charged” to four oil and gas funds it managed. Coachman and Kenworthy submitted offers of settlement in conjunction with the Order.

The SEC found that from 2011 to 2014, Coachman acted as investment adviser to four funds specializing in oil and gas operations. Each fund was charged an annual management fee which made up 2 to 2.5% of the total capital contributions given to each fund as of the last day of the year. According to the SEC, however, Coachman’s offering materials and Forms ADV did not adequately disclose that the management fees were based upon year-end contributions. Rather, these documents implied that management fees and expenses were based upon “the average amount of capital contributions under management during the course of the year.” Therefore, the SEC alleged that Coachman and Kenworthy overbilled investors in the amount of $1,128,916.

The SEC also alleged that between 2013 and 2014, Coachman billed two of the funds management expenses based upon 1.5% of the total capital contributions given to these funds as of the last day of the year. However, the offering materials for these funds allegedly did not sufficiently inform investors that the funds would be obligated to pay Coachman for management expenses based on year-end capital contributions. Rather, these materials supposedly informed investors that management expenses were calculated using the average number of capital contributions under management for the whole year. The SEC alleges that this resulted in Coachman and Kenworthy overbilled clients in the amount of $449,294.

SEC Charges Investment Adviser with Misappropriating $2.8 Million From her Clients

September 1, 2017 | Elizabeth Dalziel

On August 23, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the District of Colorado against Sonya D. Camarco (“Camarco”), an investment adviser. The complaint alleges that Camarco “misappropriated over $2.8 million in investor funds from her clients and customers.” The complaint also alleges that Camarco used these funds to pay a variety of personal expenses, including credit card bills and mortgages.

As stated in the SEC’s complaint, Camarco was a registered representative and investment adviser representative of LPL Financial LLC (“LPL”) from February 2004 through August 2017. Under LPL’s policies, Camarco was not allowed to take money from client accounts unless the clients given her “specific and express” authority to do so. However, the SEC’s complaint alleges that in July 2017, LPL realized that Camarco had been part of numerous suspicious transactions involving her clients’ accounts from 2004 through 2017. Continue reading ›

SEC Charges Investment Adviser With Defrauding Clients Regarding Advisory Fees

August 29, 2017 | Elizabeth Dalziel

On August 22, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Central District of California against Jeremy Drake (“Drake”), an investment adviser. The complaint alleges that Drake lied to two clients, a high-profile professional athlete and his wife, regarding their annual management fees. The complaint also alleges that Drake used extensive measures to back up his deception, including sending “false and misleading emails” and “a number of fabricated documents.”

According to the SEC’s complaint, Drake’s alleged misconduct occurred when he was an investment adviser representative of HCR Wealth Advisers (“HCR”), a Los Angeles-based registered investment adviser. In September 2009, the clients entered into an “Investment Advisory Agreement” with HCR. The agreement, which was signed by Drake on behalf of HCR, provided that the clients would pay an annual management fee of 1% of the clients’ assets under management. Evidence shows that the clients paid a 1% management fee for the entire period when they were clients of HCR. Continue reading ›

Court Orders Hedge Fund Advisers to Pay $12.9 Million in SEC Fraud Case

August 22, 2017 | Elizabeth Dalziel

On August 2, 2017, a federal court in Connecticut ordered Steven Hicks (“Hicks”), a hedge fund manager, and his hedge fund advisory firms to pay almost $13 million. This payment includes disgorgement and a penalty. In 2010, the Securities and Exchange Commission (“SEC”) filed a complaint against Hicks and his two hedge fund advisers, Southridge Capital Management LLC (“Southridge Capital”) and Southridge Advisors, LLC (“Southridge Advisors”). The complaint alleged that Hicks, Southridge Capital, and Southridge Advisors committed fraud by placing investor money in illiquid securities when investors were told that “at least 75% of their money would be invested in unrestricted, free-trading shares.”

According to the SEC’s complaint, starting in 2003, Hicks started soliciting investors. He told them that 75% of any money they invested in two funds he was starting would be invested in unrestricted, free-trading shares. Free-trading shares are shares that are eligible to be sold. Evidence shows that some potential investors were also told that the funds would invest “in short-term transactions that would take only 10 or 15 days, such as equity line of credit (‘ELC’) deals.” Continue reading ›

SEC Charges Broker-Dealer for Violations Relating to Suspicious Activity Report Filings

July 11, 2017 | Elizabeth Dalziel

On June 5, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Southern District of New York against Alpine Securities Corporation (“Alpine”), a Salt Lake City-based broker-dealer. The complaint alleges that Alpine failed to file Suspicious Activity Reports (“SARs”) in the manner prescribed by the Bank Secrecy Act (“BSA”). According to the SEC’s complaint, Alpine’s alleged misconduct “facilitated illicit actors’ evasion of scrutiny by U.S. regulators and law enforcement, and provided them with access to the markets they might otherwise have been denied.”

The BSA obligates a broker-dealer to file SARs with the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to report transactions that the broker-dealer knows or suspects involve funds obtained from illegal activities or that were used to conceal such activities. Broker-dealers are also obligated, under the “SAR Rule” (31 C.F.R. § 1023.320), to file SARs if they know or suspect that a transaction’s purpose was to evade BSA obligations or that the transaction did not have an obvious business or lawful purpose. Broker-dealers are also required to file SARs if they know or suspect that a transactions’ purpose is to instigate criminal activity. In addition, both FinCEN, under the SAR Rule, and the Financial Industry Regulatory Authority (“FINRA”), under FINRA Rule 3310, require that broker-dealers establish and enforce anti-money laundering programs that are tailored to guarantee compliance with the BSA and its regulations. Since Alpine was a FINRA-member firm, it was obligated to comply with FINRA’s rule regarding the adoption and enforcement of an anti-money laundering program.

The SEC alleged that while Alpine had adopted an anti-money laundering compliance program, it did not adequately put this compliance program into practice. For example, evidence showed that Alpine’s records included information revealing incidents of “money laundering, securities fraud, or other illicit financial activities relating to [Alpine’s] customers and their transactions.” These constituted so-called “material red flags” and were required to be reported in Alpine’s SARs. However, the SEC alleged that at least 1,950 of Alpine’s SARs did not report these material red flags. Evidence also showed that Alpine filed SARs on about 1,900 deposits of a security, but did not file SARs upon the subsequent liquidation of deposits.

SEC Charges Investment Adviser for Overbilling Clients to Pay Personal Expenses

July 10, 2017 | Elizabeth Dalziel

On May 30, 2017, the United States District Court for the Eastern District of New York entered a final consent judgment against Marc D. Broidy (“Broidy”) and his investment advisory firm, Broidy Wealth Advisors, LLC (“BWA”). The Securities and Exchange Commission (“SEC”) had filed a complaint alleging that Broidy and BWA “intentionally overbilled clients and used the excess fees to pay for, among other things, Broidy’s personal expenses.” The complaint also alleged that Broidy converted assets from clients’ trusts, also for the purpose of paying personal expenses.

The SEC alleged that from about February 2011 to February 2016, Broidy and BWA overbilled approximately $643,000 in connection with advisory services to five clients. The SEC also alleged that Broidy and BWA made conscious efforts to conceal the overbilling. BWA’s Form ADV and Investment Advisory Contracts stated that clients would typically be billed anywhere from 1 percent to 1.5 percent of their assets under management on a quarterly basis. However, Broidy and BWA charged clients significantly more than these percentages. Continue reading ›

SEC Charges Options Trading Instructor with Defrauding Investors in Private Funds

June 9, 2017 | Elizabeth Dalziel

On May 24, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint against an options trading instructor and unregistered investment adviser, Gustavo A. Guzman (“Guzman”). The complaint alleges that Guzman obtained more than $2.1 million from investors, assuring them that their funds would be invested in equity options and real estate. However, evidence showed that Guzman misappropriated a third of the funds “and lost the remainder through his options trading while misleading existing or prospective investors.”

Guzman was not registered as an investment adviser with the SEC or any state authority. However, he was tasked with managing investments in two private funds specializing in options trading and one real estate hedge fund. He also received management fees for managing these funds. As a result, Guzman met the definition of an investment adviser in the Investment Advisers Act of 1940 (“Advisers Act”) and was subject to its anti-fraud provisions. Continue reading ›