Financial and Investment Fraud

March 15, 2022

London-based swap dealer ED&F Man Capital Markets, Ltd. will pay $3.25 million to resolve claims that it failed to comply with swap dealer requirements including by failing to report accurate swaps data to a swaps data repository, failing to disclose to its U.S. swaps counterparties that affiliated-entity proprietary traders had access to counterparties’ trade information, and failing to disclose mid-market marks to counterparties. The CFTC further found that the entity failed to maintain an adequate supervisory system or perform its supervisory obligations diligently.  CFTC

March 15, 2022

Fund manager Eric Malley, his company MG Capital Management LP, and related entities MG Capital Realty Management LLC and MG GP III LP, have agreed to pay $12 million to resolve charges of defrauding investors.  In order to market two real estate funds managed by MG Capital, Malley allegedly made a number of material misrepresentations, including that he’d previously managed two highly successful funds and that investor funds were protected against loss.  In fact, Malley was a real estate broker with no experience managing investments, the prior funds did not exist, and he was misappropriating millions from the new funds.  SEC

March 11, 2022

A whistleblower was awarded $14 million by the SEC in a decision that departed from the recommendation of the Claims Review Staff to deny the award.  A report about a fraud committed by a company and its CEO was published online; two individuals claimed to be authors of the report, which contained analysis derived from a large number of publicly-available and non-public sources.  Neither submitted a TCR to the SEC at the time the report was published, although the whistleblower who received the award provided the report directly to Commission staff and provided additional information during the course of the enforcement action that the SEC initiated based on the report’s allegations.   The whistleblower did submit a TCR two months after the SEC posted a Notice of Covered Action, more than four years after the report was publicly released.  The Commission found that it would be in the public interest and consistent with the protection of investors to exercise its discretionary authority and grant an award despite the individual’s failure to initially file a TCR.  The second claimant, who did not submit a TCR at any time, and who did not communicate with enforcement staff, was denied an award.  SEC

March 8, 2022

The owner and operator of Rust Rare Coin, Inc. (RRC), Gaylen Dean Rust, has been sentenced to 19 years in prison for running a 12-year Ponzi scheme that defrauded 568 victims of over $153 million.  Many of the victims were his own family, friends, and fellow church members, whom he’d convinced to invest in RRC’s silver trading program through false promises.  Rust was also convicted of laundering $18 million in fraud proceeds through three personal bank accounts.  USAO UT

March 4, 2022

Venture capital fund adviser Alumni Ventures Group, LLC and its CEO Michael Collins have agreed to pay civil penalties totaling $800,000, and have returned $4.8 million to affected funds to resolve claims that they made misleading representations about AVG’s fees, and made inter-fund loans and transfers in violation of the funds’ respective operating agreements.  The SEC alleged that while AVG told customers that its management fee was the “industry standard ‘2 and 20.,” its practice was different from the industry standard in that it assessed the entire 20 percent in management fees – that is, 10 years’ worth of management fees of two percent per annum – upfront at the time an investor made the capital contribution.  SEC

March 3, 2022

City National Rochdale, LLC agreed to a civil penalty just over $30 million to resolve SEC allegations that the registered investment adviser failed to disclose to discretionary account clients that it invested their assets in proprietary mutual funds that generated fees for CNR and its affiliates, rather than in competitor funds whose fees may be lower.  The government also alleged that CNR failed to fully inform certain prospective customers of fees with respect to its proprietary funds.  The disclosure failures resulted in an undisclosed conflict of interest according to the SEC.  SEC

February 28, 2022

The Income Collecting 1-3 Months T-Bills Mutual Fund and one of its principals, Victor Chilelli, have consented to judgments ordering the return $77 million to investors; litigation against other defendants continues.  The SEC alleges that defendants, including Ofer Abarbanel, defrauded investors by misrepresenting the planned use of their funds, directing customer funds to shell companies under their control in uncollateralized loan transactions, and misappropriating investor funds for high-risk trading. SEC

February 24, 2022

The National Bank of Pakistan and its New York branch will pay a total of $55.4 million to resolve investigations by the New York State Department of Financial Services and the Federal Reserve Bank of New York into Bank Secrecy Act/Anti-Money Laundering compliance deficiencies.  The bank had previously entered into agreements with the government entities, acknowledging BSA/AML weaknesses and agreeing to undertake remedial measures.  However, the bank had failed to undertake adequate remedial  measures, as found in examinations by the government entities.  NY DFS; Fed

February 23, 2022

The CFTC settled charges against Richard D. Neal and his company Golden Signals, LLC for failing to register as a commodity trading advisor and commodity pool operator. Neal and Golden Signals, LLC will pay over $2.6 million in restitution, disgorgement, and a civil monetary penalty for the fraud perpetrated over a 5-year period beginning in October 2016. They engaged in binary options solicitation and trading fraud via webpages and social media channels, touting “the highest profit percentage ratings in the world.” Additionally, customers lost over $1.2 million through Neal and Golden Signals’ fraudulent solicitations for binary options signal, trainings, and strategy course offerings. CFTC

February 22, 2022

Healthcare company Baxter International Inc. and two of its former executives have settled claims with the SEC related to reporting of its intra-company foreign exchange transactions.  Baxter agreed to pay a penalty of $18 million; the company’s former treasurer and assistant treasurer will pay penalties of $125,000 and $100,000, respectively.  The SEC alleged that in recording foreign currency transactions recognized by its subsidiaries, Baxter used a foreign exchange rate convention that was not in accordance with U.S. generally accepted accounting principles; the company then leveraged this FX convention by engaging in intra-company transactions for the sole purpose of generating FX gains or avoiding FX losses, resulting in material misstatements of its net income.  SEC