Financial and Investment Fraud

September 8, 2016

SEC investigations found that St. Petersburg, Florida-based Raymond James & Associates and Milwaukee-based Robert W. Baird & Co. failed to establish policies and procedures necessary to determine the amount of commissions their clients were being charged when sub-advisers “traded away” with a broker-dealer outside the client’s wrap fee program.  As a result, the firms’ financial advisors were unable to provide information to their clients about the magnitude of these costs and failed to consider these costs when determining whether the sub-advisers or the wrap fee programs were suitable for clients.  Certain clients were not even aware that they were paying additional costs beyond the single wrap fee they paid for bundled investment services.  Raymond James will pay a $600,000 penalty to settle the charges against it.  Baird will pay a $250,000 penalty.  SEC

September 6, 2016

The SEC charged Scott Fraser, CEO of sexual health products retailer Empowered Products, Inc., his newsletter publishing business, Contrarian Press, and Nathan Yeung, a paid promoter, with orchestrating fraudulent promotional campaigns to tout the company’s stock.  The SEC alleges that Fraser used Contrarian Press and hired Yeung to promote Empowered Products through online articles purportedly authored by independent authors.  In fact, Fraser and Yeung authored, authorized, and distributed the articles touting Empowered Products, working under pseudonyms and hiring other promoters to disseminate their promotional materials without disclosing that Empowered and Fraser had approved and paid for the advertisements.  SEC

September 1, 2016

The SEC charged Alabama attorney Donald Watkins and his companies, Watkins Pencor LLC and Masada Resource Group LLC, with defrauding professional athletes and other investors out of millions of dollars, much of which he spent on his girlfriend and to cover other personal expenses.  The Commission’s complaint alleges that Watkins falsely told investors that their funds would be invested in waste-to-energy ventures, and that Waste Management Inc., a large waste treatment company, was seriously considering acquiring Watkins Pencor and Masada in a multi-billion dollar transaction.  SEC

August 31, 2016

Financial advisor RBC Capital Markets will pay $2.5 million to settle allegations it caused materially false and misleading disclosures by Rural/Metro Corporation.  Rural/Metro, a medical transportation company, paid RBC $500,000 to prepare a “fairness opinion” which would be presented to Rural/Metro’s board in conjunction with Rural/Metro’s potential sale to a private equity firm.  The SEC found that RBC’s presentation contained materially false and misleading statements which made the bid look more attractive.  RBC’s information was included in the proxy statement Rural/Metro used to solicit shareholder approval for the sale.  SEC

August 30, 2016

The SEC announced that awards to whistleblowers surpassed $100 million.  The SEC’s press release stated that enforcement actions resulting from whistleblower tips have resulted in orders for more than $500 million in financial remedies.  SEC

October 4, 2016

A federal court has found that racecar driver Scott A. Tucker and several corporate defendants in a Kansas City-based payday lending scheme violated Section 5 of the FTC Act and has ordered them to pay $1.3 billion for deceiving consumers across the country and illegally charging them undisclosed and inflated fees. The $1.3 billion order represents the largest litigated judgment ever obtained by the FTC. It stems from a complaint filed in 2012 by the agency, which alleged that the operators of AMG Services Inc. falsely claimed they would charge borrowers the loan amount plus a one-time finance fee. Instead, the defendants made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan. The judgment represents the difference between what consumers actually paid on the loans and what they were told they would have to pay. FTC

June 6, 2016

The CFPB took action against payment processer Intercept Corporation and two of its executives, Bryan Smith and Craig Dresser, for allegedly enabling unauthorized and other illegal withdrawals from consumer accounts by their clients.  The complaint alleges Intercept, Smith, and Dresser processed payments for clients without adequately investigating, monitoring, or responding to red flags that indicated some clients were breaking the law or deceiving customers.  CFPB

June 1, 2016

Wall Street-based brokerage firm Albert Friend & Company (AF&Co) will pay $300,000 to settle charges it failed to sufficiently evaluate or monitor customers’ trading for suspicious activity.  Specifically, an SEC investigation found that AF&CO failed to file Suspicious Activity Reports with bank regulators for more than five years despite red flags tied to its customers high-volume liquidations of low-priced securities.  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