Financial and Investment Fraud

March 22, 2019

Merrill Lynch agreed to pay $8 million to settle charges by the SEC that it improperly borrowed ADRs from other brokers when it knew that these other brokers did not own the foreign shares needed to support the pre-released ADRs.  This practice artificially inflates the number of securities that are tradeable for a foreign issuer.  SEC

March 21, 2019

A hedge fund manager in Boston was sentenced to 14 years in prison for running a multi-million dollar Ponzi scheme from 2009 to 2017. Raymond Montoya, who ran RMA Strategic Opportunity Fund, LLC, was accused of misrepresenting the fund's rate of returns to induce millions of dollars in investments from unsuspecting victims across three states, including family, friends, and acquaintances. Montoya only invested a portion of the money – the rest was diverted to other bank accounts and used to pay personal expenses. USAO MA

March 20, 2019

Wells Fargo Securities has been ordered to pay over $800,000 in civil penalties to the SEC for failing to disclose that a video game development project being financed by a bond it underwrote still faced a significant shortfall in funding. The lead banker on the deal, Peter Cannava, was additionally accused of failing to disclose the fees being paid to the firm by startup video game company, 38 Studios. SEC

March 12, 2019

Lumber Liquidators agreed to pay $33 million in criminal fines and forfeitures for knowingly making false and misleading statements regarding formaldehyde emissions from laminate flooring imported by the company from China.  In March, 2015, 60 Minutes reported that laminate flooring sold by Lumber Liquidators in the United States did not meet California Air Resources Board (CARB) emission standards for formaldehyde and featured undercover videos and laboratory test results.  The company filed an SEC Form 8-K broadly denying the allegations in the 60 Minutes episode and asserting that Lumber Liquidators complied with CARB regulations. The statement, however, omitted material facts known to the company. The company also entered into a deferred prosecution agreement, agreeing to implement internal control procedures and cooperate with ongoing investigations.   In a separate agreement with the SEC, Lumber Liquidators will also disgorge over $6 million in profits and prejudgment interest, which amount will be credited against the criminal penalties.  DOJ; SEC; USAO ED VA.

March 11, 2019

Investment advisers that placed their clients in higher-cost mutual fund share classes, and received a share of the higher 12b-1 fees charged by those investments, but failed to adequately disclose the conflicts of interest where a lower-cost share class was available, will collectively return more than $125 million to their clients, the majority of whom are retail investors.  Seventy-nine investment advisors have agreed to refund the improperly disclosed fees collected by them to individual clients, with interest, as well as to undertake additional compliance procedures.  SEC

March 7, 2019

A Missouri man who told investors that he was purchasing and reselling cattle at a profit has been sentenced to 8 years in prison and ordered to pay over $3 million in restitution. Cameron Hager, who owned and operated 5A Holdings, LLC, allegedly received $4.7 million dollars from 92 investors under the pretext that he was buying herds of cattle from distressed farmers and selling them to slaughterhouses for a net return of 23-28%. Following complaints by suspicious investors, he eventually admitted to the Missouri Secretary of State's Securities Division that there were no cattle. USAO WDMO

March 5, 2019

BB&T Securities, the North Carolina-based successor in interest to Valley Forge Asset Management, has agreed to pay more than $5 million in restitution to investors defrauded by Valley Forge. According to the SEC, Valley Forge misled would-be investors into choosing them as a broker by false promising a 70% discount from its supposed retail commission rate. In reality, however, Valley Force was charging about 4.5 times more than what customers would have paid elsewhere. SEC

March 4, 2019

The CFTC announced an award of $2 million to an individual whistleblower under its Whistleblower Program. The CFTC revealed that the individual was not an insider, had provided expert analysis of market data, and received an award at least in part based on related actions brought by non-CFTC federal regulators.  As is their usual practice, the CFTC did not release further details about the case. CFTC