Misrepresentations

June 30, 2017

The Securities and Exchange Commission today filed fraud charges against the clandestine founder of a purported Bitcoin platform and a chain of co-working spaces located in former bars and restaurants, alleging that he bilked investors in both companies while hiding his connection given his checkered past with regulators in the U.K.  The SEC alleges that Renwick Haddow, a U.K. citizen living in New York, created a broker-dealer and did not register the firm with the SEC as required under the federal securities laws.  Haddow allegedly used sales representatives to cold call potential investors and sell securities in Bitcoin Store Inc. and Bar Works Inc. According to the SEC’s complaint, offering materials presented to investors in both companies touted the backgrounds of senior executives who do not appear to exist.  The materials also misrepresented other key facts about both companies’ operations.  Haddow allegedly diverted more than 80 percent of the in funds raised by the broker-dealer for the Bitcoin Store, and sent more than $4 million from the Bar Works bank accounts to one or more accounts in Mauritius and $1 million to one or more accounts in Morocco. SEC

June 28, 2017

The Securities and Exchange Commission today charged a Canadian-based oil and gas company and three of its former top finance executives for their roles in an extensive, multi-year accounting fraud. The SEC's complaint alleges that Penn West Petroleum Ltd., which has since been renamed Obsidian Energy Ltd., fraudulently moved hundreds of millions of dollars in expenses from operating expense accounts to capital expenditure accounts. This alleged fraudulent movement caused Penn West to artificially reduce its operating costs by as much as 20 percent in certain periods, which falsely improved reported metrics for oil extraction efficiency and profitability. Penn West was one of Canada's largest oil producers at the time. According to the SEC's complaint, the fraud was orchestrated by the company's former CFO Todd Takeyasu, former vice president of accounting and reporting Jeffery Curran, and former operations controller Waldemar Grab. The SEC alleges that they manipulated the company's operating expenses in order to lower a key publicly reported metric concerning the cost of oil extraction and processing needed to sell a barrel of oil. Penn West allegedly created an internal budget target representing the amount it would improperly move in its publicly-reported financial statements and gave the illusion that it was spending less money to get oil of out the ground. In fact, the SEC alleges, the company historically struggled to keep its operating costs under control, and Takeyasu, Curran, and Grab managed operating expenses to meet the budget target. According to the SEC's complaint, they frequently met this target to the dollar by having the company record large, round number, and unsupported adjusting journal entries. Within the company, this practice was referred to as "reclass to capital." SEC

July 20, 2017

The U.S. Commodity Futures Trading Commission (CFTC) announced today the settling of charges against Respondents Arthur Toole IIIof Atlanta, Georgia, and his companies, Billionaire Investor Group (BIG), a Texas limited liability company, The Toole Group Inc. (Toole Group), a Texas corporation, and Catalyst Traders LLC (Catalyst), a Georgia limited liability company, for misappropriating commodity pool funds, fraudulent misrepresentations, commingling pool funds, and acting as an unregistered commodity pool operator. The CFTC Order finds that from in or about February 2011 through at least January 2016, Toole incorporated his companies in Texas and Georgia, all of which operated as separate, consecutive commodity pools and which primarily traded Chicago Mercantile Exchange Euro FX futures and E-Mini Dow futures contracts. The Order further finds that Toole solicited over $375,000 from pool participants for the three commodity pools and misappropriated over $244,000 from the pools for personal and non-trading expenses. Pool participants suffered net losses amounting to $293,141, according to the Order. The Order also finds that Toole misrepresented trading results and the pools’ assets under management and commingled funds from all three pools with non-pool property. CFTC

June 28, 2017

The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Loretta C. Biggs of the U.S. District Court for the Middle District of North Carolina entered an Order of Final Judgment by Default (Order) against Defendants Tracy Lee Thomas (a/k/a Treyton L. Thomas, a/k/a Trayton L. Thomas, a/k/a Trey Thomas, a/k/a Tray Thomas, a/k/a T.L. Thomas), formerly of Naples, Florida, and Marbury Advisors Inc. (Marbury), a Cayman Islands corporation. The Court’s Order finds that the Defendants had fraudulently solicited over $ 1.1 million from customers, lost those funds trading, and provided customers with false reports or statements indicating their investments were profitable. The Court’s Order, entered on April 11, 2017 and stemming from a CFTC complaint filed March 22, 2016 (see CFTC Complaint and Press Release 7348-16), requires Thomas and Marbury, jointly and severally, to pay restitution of $1,110,413 and a civil monetary penalty of $3,331,239, which represents triple the monetary gain to Defendants. The Order also imposes permanent trading and registration bans and prohibits Defendants from further violations of the Commodity Exchange Act, as charged. CFTC

June 14, 2017

Michael Gluk, former chief financial officer of ArthroCare, pleaded guilty to conspiring with others to falsely inflate ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors. He further admitted that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 and Form 10-Q for the first quarter of 2008 with the SEC that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings. DOJ

May 15, 2017

The Securities and Exchange Commission today charged James Im and Kee Chan a pair of former head traders who ran the commercial mortgage-backed securities (CMBS) desk at Nomura Securities International Inc. with deliberately lying to customers in order to inflate the profits of the CMBS desk and line their own pockets as a result. The SEC alleges that Im and Chan each misrepresented price information while acting as intermediaries on trades with Nomura’s customers who sought to buy and sell CMBS on the secondary market.  In certain instances, Im and Chan allegedly pretended they were still negotiating bond purchases with a third-party seller at higher prices when Nomura had already acquired the bonds at a lower price. The SEC alleges that in one instance, Im bragged about his purposeful deception of a customer, and Chan once altered an email to a customer to prop up his lie about the bid price for a bond.  According to the SEC’s complaints, Chan and Im fraudulently generated more than $750,000 in extra trading profits for the CMBS desk, and they received substantial bonuses based largely on the desk’s performance. SEC

April 5, 2017

The Securities and Exchange Commission today announced that Lawson Financial Corporation an Arizona-based brokerage firm, its CEO, Robert Lawson and its former underwriter’s counsel John T. Lynch Jr. have agreed to settle charges related to municipal bond offerings they were underwriting that turned out to be fraudulent. The SEC’s order finds that Lawson Financial Corporation failed in its role as a gatekeeper to conduct reasonable due diligence when underwriting bond offerings to purchase and renovate nursing homes and senior living facilities.  The offerings were managed by Atlanta-based businessman Christopher F. Brogdon, who was later charged by the SEC with fraud and faces a court order to repay $85 million to investors.  Lawson Financial failed to ensure Brogdon and his related borrowers were in compliance with their continuing disclosure undertakings as required by Rule 15c2-12, which generally prohibits underwriters from purchasing or selling municipal securities unless the issuer or obligated person has committed to providing continuing disclosure information, such as annual financial materials and operating data. Lawson Financial’s founder and CEO Lawson and then-underwriter’s counsel Lynch Jr. are charged with failing to conduct reasonable due diligence, and Lynch also failed to disclose that he was not actually authorized to practice law at the time as represented to investors in the bond offering documents. SEC

May 22, 2017

The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Bruce S. Jenkins in the U.S. District Court for the District of Utah entered a Consent Order against Defendants Kimball Parker of Lehi, Utah, and his Utah company, MakeYourFuture, LLC (MYF), who were charged with fraud and other violations in connection with the offering and sale of a futures trading system marketed under the names “MakeYourFuture” and "Changes Trading." The Consent Order, entered on May 19, 2017, requires Parker and MYF, jointly and severally, to pay restitution to defrauded customers totaling $853,294.98, plus a $354,000 civil monetary penalty. CFTC

May 3, 2017

The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil enforcement action in the U.S. District Court for the District of Arizona against Cory Williams of Gilbert, Arizona, and his company, Williams Advisory Group (WAG) (collectively, Defendants), charging them with defrauding 40 investors out of at least $13 million in connection with a commodity pool they operated. The CFTC Complaint charges Defendants Williams and WAG with commodity futures fraud and Williams with commodity pool fraud and failure to register as a commodity pool operator. The Complaint also charges Williams with engaging in activities prohibited for a commodity pool operator, including commingling pool participant funds with Williams’ personal funds. The Complaint alleges that Williams’ victims included family members, friends, neighbors and members of his church and other related churches in and around Phoenix, Arizona. CFTC

May 2, 2017

The U.S. Commodity Futures Trading Commission (CFTC) filed an enforcement action in the U.S. District Court, Northern District of Illinois, charging Defendant, William H. Powderly IV (Powderly) of New Hope, Pennsylvania, with fraudulently soliciting at least $825,000 from at least four customers for purposes of trading commodity futures on their behalf in an account in Powderly’s name. The Complaint also charges Powderly with making and providing false and misleading account statements to his customers. In particular, the Complaint alleges that from at least January 2016 through October 2016, Powderly solicited customers and prospective customers by claiming that he and a university professor had developed a commodity futures trading program that generated exceptional hypothetical trading results and that “beta” testing of this system generated consistent gains without a single day of loss. The Complaint further alleges that when soliciting customers and prospective customers, Powderly failed to tell them that the actual commodity trading he conducted for his commodity account during that 10-month period was consistently unprofitable, sustaining losses every month during that time. Additionally, the Complaint alleges that Powderly created false account statements for his trading account and sent them to his customers in order to conceal his trading losses. CFTC