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Financial and Investment Fraud

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Crypto projects are toying with public funds. The False Claims Act will be a powerful tool in holding them to account

Posted  09/21/22
cryptocurrency and stocks
Last month, the Fairfax County Retirement System shared that they will be putting $70 million of their $6.8 billion fund into two crypto yield farming funds. In other words, pension money that allows teachers, firefighters, and police officers to retire will be invested into volatile digital tokens known as yield-farming projects. Yield-farming projects offer yields that are significantly higher than those...

September 20, 2022

Morgan Stanley Smith Barney LLC (MSSB) has agreed to pay $35 million to the SEC to settle charges of failing to protect the personal identifying information (PII) of some 15 million customers.  Between 2015 to 2020, MSSB failed to properly encrypt PII or properly dispose of devices and servers containing PII.  As a result, decommissioned devices containing unencrypted PII were resold by a third party via an internet auction site, and 42 decommissioned servers containing unencrypted PII went missing entirely.  SEC

September 12, 2022

A man who operated a Ponzi scheme that procured over $5 million from victims in Puerto Rico and the continental U.S. has been sentenced to over 11 years in prison and ordered to pay nearly $2 million in restitution to 46 victims.  Carlos Maldonado was found to have misrepresented his companies as legitimate businesses, and failed to disclose to investors that their funds would be used for his own purposes, including buying and trading stocks on his personal accounts, and paying off personal auto loans payments.  USAO PR

September 2, 2022

Swapnil Rege, SwapStar Capital LLC, and Reema Rege have been ordered to pay $5 million in disgorgement and pre-judgment interest for engaging in fraudulent solicitation and misappropriation, including on Swapnil’s part, engaging in trading despite an existing bar for prior violations, and on Reema’s part, receiving illegally-obtained profits she was not entitled to.  The orders resulted from parallel but separate enforcement actions by the CFTC and SEC, and included a permanent trading and registration ban against Swapnil.  CFTC; SEC

August 24, 2022

Taronis Technologies, Inc. and related entities have agreed to pay a total of $5.1 million in disgorgement and interest to resolve allegations that the companies issued false and misleading statements claiming to have agreements and relationships with customers that did not exist or were exaggerated.  Taronis executives created fake and backdated orders, resulting in improper revenue recognition.  Based on these misstated financials, defendants raised approximately $30 million from investors in private placements.  SEC

August 10, 2022

Angel Oak Capital Advisors and its portfolio manager Ashish Neghandi will pay $1.75 million and $75,000 respectively to settle charges of misleading investors via their $90 million securitization of home renovation loans. When delinquency rates on their “fix-and-flip” loans increased unexpectedly, rather than accelerating return payments to certain investors, as contractually required, defendants artificially reduced delinquency rates by diverting borrowers’ funds to pay down outstanding loan balances. SEC

August 3, 2022

Arthur Merson will spend 15 months in prison and will pay over $3.4 million in restitution for his scheme to defraud investors by conspiring to commit wire fraud. Merson acted as an intermediary between investors and the principal co-conspirators, representing to investors they could receive a portion of the value of multi-million-dollar Standby Letters of Credit with a minimal investment, and would reap multiples of their investment in a matter of weeks. In 2017 and 2018, Merson lied to investors, calling himself an independent consultant who would receive only a small finder’s fee for his efforts, when in reality he had significant financial interest in the investments and affirmatively misled investors when responding to their inquiries. USAO ME

August 2, 2022

Crown Bridge Partners, Soheil Ahdoot, and Sepas Ahdoot, will pay more than $9 million for operating as unregistered securities dealers, and are required to surrender all conversion rights, unexercised warrants, and cancel any shares acquired by converting notes or exercising related warrants resulting from their fraud. Over a 5-year period, from 2016 to 2020, the defendants bought convertible notes, converted them into billions of newly issued shares of heavily-discounted stock, and sold the new shares at significant profit, all while not being registered as dealers with the SEC, skirting regulatory oversight. Defendants are subject to a 5-year penny stock bar in addition to the monetary penalties. SEC

July 29, 2022

Aegis Capital Corp., and two of its former representatives, Alan Z. Appelbaum and Paul F. Gallivan will pay around $2.5 million total for making materially false and misleading statements and making unsuitable investment recommendations, namely, variable interest rate structured products. Appelbaum, Gallivan, and 14 Aegis brokers recommended these highly complex and risky products to customers with “moderate” risk tolerance, despite having investment timelines inconsistent with the VRSP maturity dates. The targeted customers’ financial needs were disregarded, as were their risk tolerance, investment objectives, age, investment experience, and liquidity needs. SEC

July 29, 2022

First American Payment Systems—a merchant payment processing provider—and two sales affiliates have been ordered to return $4.9 million to businesses harmed by FAPS’ hidden terms, surprise exit fees, and zombie charges. FAPS’ preyed mostly on merchants with limited English proficiency, promising low costs and an easy exit, but hit them with surprise fees and illegal charges when the customers tried to get out. In addition to the monetary penalty, FAPS is required to stop misleading customers about fees and pricing, stop unauthorized bank withdrawals, make service cancellation easier, and stop charging early termination fees. FTC
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