Archive

March 29, 2017

A major subprime auto loan funder in Massachusetts, Santander Consumer USA Holdings Inc. (Santander), will pay $22 million for its role in facilitating unfair, high-rate auto loans for thousands of Massachusetts car buyers. The AG’s investigation, handled jointly with the Delaware Attorney General’s Office, revealed that Santander allegedly funded auto loans without having a reasonable basis to believe that the borrowers could afford them. In fact, Santander predicted that many of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers, were incorrect and often inflated. Car loans to consumers with poor credit, known as subprime auto loans, are often made through contracts signed at the car dealership, but the loans are funded by non-dealer financial institutions, like Santander. As part of the funding process, many financial entities resell or repackage the loans, passing them along to third parties. Money obtained from this process is then used to fund more subprime loans. MA

March 23, 2017

New Jersey announced that the manager of a now-defunct Bergen County used car dealership was sentenced to 10 years in prison for his role as “point man” in a bank financing scam that netted $1.4 million in fraudulent loans for luxury cars. Hector Marquez, the general manager of D.I.B Leasing in Teterboro, was also ordered to pay $110,370 in restitution under the sentence handed down yesterday by Superior Court Judge Susan Steele in Bergen County. Marquez, 44, of Monroe, pleaded guilty in July to first-degree money laundering and second-degree misconduct by a corporate official in the dealership case. He also pleaded guilty to second-degree insurance fraud in a separate indictment involving a $139,000 Bentley purchased at his dealership and later torched and reported stolen to an insurance company. He was sentenced to 10 years in prison for that case and will serve both sentences concurrently. Last week, the dealership’s finance manager, Paul Russo, 52, of Scotch Plains, was sentenced to six years in prison and ordered to pay $150,267 in restitution by Superior Court Judge Steele. In July 2015, Russo pleaded guilty to second-degree money laundering and second-degree misconduct by a corporate official in the dealership case. NJ

February 14, 2017

Morgan Stanley Smith Barney will pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.  The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs.  Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a hedging strategy.  Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many clients experienced losses.  The SEC’s order further found that Morgan Stanley failed to follow through on another key policy and procedure requiring a supervisor to conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.  Finally, the SEC’s order found that Morgan Stanley failed to monitor the single ETF positions on an on-going basis and did not ensure that certain financial advisers completed single inverse ETF training.  SEC

February 13, 2017

New York-based brokerage firm Sidoti & Company LLC will pay a $100,000 penalty to settle charges of compliance and trading surveillance failures.  Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.  Sidoti’s hedge fund, by design, invested in issuers covered by Sidoti’s research department and, additionally, some of the issuers for which Sidoti provided investment banking services.  Yet, according to the SEC’s order, for a period of more than eight months, from November 3, 2014 (when the hedge fund commenced trading) until July 10, 2015, Sidoti had no written policies or procedures in place to prevent the misuse of material, nonpublic information by its founder and CEO or any other associated persons that had the authority to or otherwise participated in making investment decisions for the hedge fund.  SEC

January 25, 2017

The SEC announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.  The SEC alleges that the firm, formerly Meyers Associates L.P. failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who were separately charged by the SEC with conducting a pump-and-dump scheme.  The SEC alleges that Windsor and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts.  Customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm.  The SEC further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available.  Rather than conduct a reasonable inquiry into the deposits, Windsor allegedly accepted claims of exemption at face value.  The SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo, and Justin Sindelman.  The complaint alleges that they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices.  Barton, Goode, Briggs, and Manzo will pay almost $8.8 million collectively to settle the charges brought against them.  SEC

January 24, 2017

Morgan Stanley Smith Barney and Citigroup Global Markets will pay $2.96 million each to settle charges that they made false and misleading statements about a foreign exchange trading program sold to investors.  According to the SEC’s orders, Citigroup held a 49% ownership interest in Morgan Stanley at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as “CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011.  The SEC’s orders finds that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade.  The undisclosed leverage and markups caused investors to suffer significant losses.  SEC

January 13, 2017

Morgan Stanley Smith Barney will pay a $13 million penalty to settle charges that it overbilled more than 149,000 investment advisory clients due to billing system errors.  According to the SEC’s order, Morgan Stanley received more than $16 million in excess fees between 2002 and 2016 due to more than 36 types of billing errors.  Morgan Stanley has reimbursed the full amount plus interest to affected clients.  The SEC’s order also found that Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination.  SEC

January 31, 2017

All 50 states and the District of Columbia announced a joint settlement with Colorado-based The Western Union Company, resolving a multistate investigation which focused on complaints of consumers who used Western Union’s wire transfer service to send money to third parties involved in schemes to defraud consumers. The settlement requires Western Union to develop and put into action a comprehensive anti-fraud program designed to help detect and prevent incidents where consumers who have been the victims of fraud use Western Union to wire money to scam artists. Western Union also has agreed to pay a total of $5 million to the states for the states’ costs and fees. In addition to this settlement with the states, Western Union also settled claims related to fraud-induced transfers with the Federal Trade Commission and U.S. Department of Justice, as announced on January 19, 2017. As part of those related settlements, Western Union has agreed to pay $586M to a fund that the Department of Justice will administer to provide refunds to victims of fraud induced wire transfers nationwide. NY, FL, MA, OH, PA

January 30, 2017

Florida announced a $1.5 million life claim settlement agreement reached with subsidiaries of the Ameriprise Group, RiverSource Life Insurance Company and RiverSource Life Insurance Company of New York. The settlement agreement focuses on the one-sided use of the Social Security Administration’s Death Master File to stop paying a deceased person’s annuity, but not using the same information to find and begin paying the deceased’s family or other beneficiaries for life insurance policies. Florida, California, New Hampshire, North Dakota and Pennsylvania conducted the examination into the companies that led to this agreement. Florida’s allocation of the multi-state settlement payment by Ameriprise is more than $111,000, which covers the costs of the investigations and future compliance monitoring. To date, state insurance regulators have either reached settlements or concluded the investigation of 28 of the top 40 companies constituting 80 percent of the total market. Efforts continue to be focused on the examination of the remaining 12 insurers. FL

January 26, 2017

E*TRADE Securities LLC and E*TRADE Clearing LLC were ordered to pay a $280,000 civil monetary penalty by the CFTC for failing to failure to retain required records and failure to diligently supervise. The CFTC found that between October 2009 and January 2014, E*TRADE Securities did not preserve and maintain certain audit trial logs for their customers. CFTC