Archive

May 31, 2016

The SEC charged two California men, Jaswant “Jason” Gill and Javier Rios, along with their investment firm, JSG Capital Investments, with operating a Ponzi scheme as they purported to specialize in serving middle-class investors and securing exorbitant returns by investing in hot pre-IPO stocks.  The SEC alleges that instead of using the firm’s purported proprietary trading models and investing in pre-IPO shares of well-known tech companies, as promised to investors, Gill and Rios personally pocketed at least $2.8 million in investor funds.  They never actually invested in any pre-IPO shares and used money from new investors to pay supposed returns to earlier investors.  They raised approximately $10 million by catering to average retail investors and promising them exclusive investment opportunities “previously only available to the one-percenters.”  The SEC also obtained a court ordered asset-freeze against the defendants.  SEC

May 31, 2016

The SEC charged Nashville-based investment advisory firm Hope Advisers, Inc. and its owner, Karen Bruton, with scheming to collect extra fees from a pair of hedge funds they managed.  The SEC alleges that Hope Advisers and Bruton orchestrated certain trades to cause the funds to realize large gains near the end of the month, while basically guaranteeing a large loss to be realized the following month, in order to circumvent the funds’ fee structure under which Hope Advisers was entitled to fees only if the funds’ profits in the month exceeded past losses.  Without the fraudulent trades, Hope Advisers would have received almost no incentive fees since October 2014.  Hope Advisers and Bruton have consented to an interim order that restricts them from accessing $7 million of their own investments in the funds.  SEC

May 31, 2016

California-based mortgage company First Mortgage Corporation (FMC), along with six senior executives, will pay $12.7 million to settle charges that they orchestrated a scheme to defraud investors in the sale of residential mortgage-backed securities guaranteed by the Government National Mortgage Association (Ginnie Mae).  FMC is a mortgage lender that issued Ginnie Mae RMBS backed by loans it originated.  The SEC alleges that from March 2011 to March 2015, FMC and its senior-most executives pulled current, performing loans out of Ginne Mae RMBS by falsely claiming they were delinquent in order to sell them at a profit into newly-issued RMBS.  According to the SEC’s complaint, FMC purposely delayed depositing checks from borrowers who had been behind on their loans, falsely claiming to both investors and Ginnie Mae that such loans remained delinquent when in reality they were current.  After repurchasing at prices applicable to delinquent loans, FMC was able to resell the loans into new Ginnie Mae RMBS pools at higher prices applicable to current loans for an immediate, nearly risk-free profit.  FMC’s Chairman and CEO Clement Ziroli Sr., President Clement Ziroli Jr., CFO Pac Wong, Senior VP Ronald Vargas, Senior VP Scott Lehrer, and Servicing Department Managing Director Edward Joseph Sanders will pay collectively over $1 million to settle the SEC’s charges.  SEC

May 31, 2016

The SEC announced insider trading charges against investment banker Steven McClatchey and his friend and plumber Gary Pusey.  The SEC alleges that McClatchey had regular access to highly confidential nonpublic information about impending transactions being pursued for investment bank clients.  McClatchey allegedly tipped Pusey on 10 different occasions ahead of public merger announcements.  Pusey allegedly used the misappropriated nonpublic information to generate $76,000 in illicit trading profits.  In return for the tips, Pusey provided McClatchy with free services during his bathroom remodel and paid him thousands of dollars in cash that he typically placed in McClatchey’s gym bag while at the marina where they kept their boats or which he handed to him directly in his garage.  SEC

May 24, 2016

The SEC obtained a court order to freeze the profits of Nauman A. Aly, a trader in Pakistan, who allegedly made more than $425,000 in profits by manipulating a technology stock through false company filings.  The SEC alleges that Aly filed a form 13D on the SEC’s Edgar system falsely stating that his group of investors had purchased a 5.1% beneficial ownership of Silicon Valley-based Integrated Device Technology (IDT) and had offered to acquire all of the company’s shares for a price that represented a 65 percent premium.  The market reacted quickly to the filing and IDT’s stock price increased by more than 25% in less than 10 minutes.  Aly then sold all of his IDT call options for an illicit profit of more than $425,000.  The asset freeze ensures that Aly cannot withdraw the $425,000 from his U.S.-based account.  SEC

May 20, 2016

The SEC announced a whistleblower award of more than $450,000 to be split between two individuals for a tip that led the agency to open a corporate accounting investigation and for their assistance once the investigation was underway.  SEC

May 19, 2016

Eric J. Kellogg, mayor of Harvey, Illinois, will pay $10,000 and has agreed to never participate in a municipal bond offering again, in order to settle SEC fraud charges.  The SEC alleged that Kellogg was connected to a series of fraudulent bond offerings by the city.  Investors were told that their money would be used to develop and construct a Holiday Inn hotel in Harvey, but instead city officials diverted at least $1.7 million in bond proceeds to fund the city’s payroll and other operational costs.  SEC

May 19, 2016

The SEC announced insider trading charges against professional sports gambler William “Billy” Walters.  The SEC alleges that Walters was owed money by Thomas C. Davis, former board member of Dean Foods.  According to the SEC’s complaint, Davis regularly shared insider information about Dean Foods with Walters in advance of market-moving events.  The two communicated using prepaid cell phones and through other methods in an effort to avoid detection.  Around 2013, when Davis was lacking market-moving information about Dean Foods to share with Walters, he began sharing non-public information about strategic plans for Darden Restaurant group which Davis had subject to a non-disclosure agreement.  Walters allegedly made $40 million based on the illegal stock tips from Davis.  The SEC also included professional golfer Phil Michelson as a relief defendant.  The SEC alleges that Mickelson owed Walters money and Walters urged him to trade in Dean Food securities based on Davis’ information.  Michelson reaped more than $931,000 in profits based on his trading of Dean Foods securities and used part of the money to pay his trading debts to Walters.  Michelson has agreed to full disgorgement of his trading profits plus interest.  SEC

May 17, 2016

The SEC announced a whistleblower award of more than $5 million to a former company insider whose detailed tip led the agency to uncover securities violations that would have been nearly impossible for it to detect but for the whistleblower’s information.  SEC

May 13, 2016

The SEC announced a whistleblower award of more than $3.5 million to a company employee whose tip bolstered an ongoing investigation of wrongdoing that strengthened the SEC’s case.  SEC