Regulatory Violations

June 13, 2018

The CFTC has charged an LLC, Omega Knight 2, and two of its members, Aviv Michael Hen and Erez, with previous metals fraud. According to the agency, the defendants engaged in illegal, off-exchange transactions in previous metals and failed to register their trades with the CFTC. The defendants also allegedly made false statements to induce customers to enter various kinds of precious metals transactions, receiving over $5.5M from 90 different customers. CFTC

June 4, 2018

Registered commodities trader and repeat fraudster Rawle Gerard Suite was sentenced to more than 10 years in federal prison for orchestrating a fraudulent investment scheme in which he concealed his identity, misrepresented the true nature of a number of shell companies he claimed were trading soybeans, gold, oil, and other commodities; the scheme caused losses of $1.6 million. USAO CDCA

May 21, 2018

Virginia investment adviser Roger Hudspeth was sentenced to 12.5 years in prison for selling to clients fraudulent, unregistered securities created, offered, and controlled by an associate previously banned by FINRA for prior fraudulent activities; Hudspeth’s clients lost more than $6 million in the scheme. USAO EDVA

June 4, 2018

June 4, 2018 – New York-based investment adviser deVere USA, Inc. has agreed to pay an $8 million civil penalty related to its failure to disclose conflicts of interest to its retail clients. The SEC found the firm violated the Investment Advisers Act of 1940, including the antifraud provisions, by failing to disclose compensation agreements with overseas product and service providers which created incentives for deVere USA to recommend pension transfers using those particular providers.  The order also finds that deVere USA made materially misleading statements to clients concerning tax treatment and available investment options. The settlement will result in the establishment of a Fair Fund for distribution of the penalty to affected clients. The SEC also announced the filing of lawsuit against former deVere USA CEO, Benjamin Alderson, and a former manager, Bradley Hamilton. SEC

June 1, 2018

The SEC today announced settlements with 13 registered investment advisers who repeatedly failed to provide required information that the agency uses to monitor risk. According to the SEC’s orders, the advisers failed to file annual reports on Form PF informing the agency about the private funds they advise, including the amount of assets under management, fund strategy, performance, and use of borrowed money and derivatives. Private fund advisers managing $150 million or more of assets have been required to make annual filings on Form PF since 2012. The orders found that the 13 advisers were delinquent in their filings over multi-year periods. The SEC’s orders find that the advisers violated the reporting requirements of the Investment Advisers Act of 1940. Without admitting or denying the findings, the advisers agreed to be censured, to cease and desist, and to each pay a $75,000 civil penalty.  During the course of the SEC’s investigation, the advisers also remediated their failures by making the necessary filings. SEC

May 16, 2018

The SEC announced settled charges against broker-dealers Chardan Capital Markets LLC and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) for failing to report suspicious sales of billions of penny stock shares. Broker-dealers are required to file Suspicious Activity Reports (SARs) for transactions suspected to involve fraud or with no apparent lawful purpose. According to the SEC, from October 2013 to June 2014, Chardan, an introducing broker, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions. Chardan failed to file any SARs even though the transactions raised red flags, including similar trading patterns and sales in issuers who lacked revenues and products. The SEC found that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers. The SEC’s orders found that Chardan and ICBCFS violated the Exchange Act and an SEC financial recordkeeping and reporting rule and that Chardan’s anti-money laundering (AML) officer, Jerard Basmagy, aided and abetted and caused the firm’s violations. The SEC also found that ICBCFS failed to produce documents promptly to SEC staff.  Without admitting or denying the SEC’s findings, the parties agreed to settlements requiring Chardan to pay a $1 million penalty, ICBCFS to pay $860,000, and Basmagy to pay $15,000.  Both firms consented to censures and, along with Basmagy, to cease and desist from similar violations in the future.  Basmagy also agreed to industry and penny stock bars for a minimum of three years. SEC

May 9, 2018

The SEC announced it charged a registered municipal advisor and its owner with defrauding a south Texas school district in connection with multiple municipal bond offerings. The SEC’s order instituting proceedings found that in connection with three municipal bond offerings between January 2013 and December 2014, Mario Hinojosa and his wholly-owned municipal advisor, Barcelona Strategies LLC, misrepresented their municipal advisory experience and failed to disclose conflicts of interests to their client, a local school district in South Texas. While working as a paralegal, Hinojosa set up Barcelona, registered it as an SEC municipal advisor, drafted a marketing brochure about the firm, and circulated the brochure to the school district and other municipalities. The brochure created the misleading impression that Hinojosa and Barcelona had served as a municipal advisor on numerous municipal bond issuances and failed to disclose that Hinojosa had a financial interest in the school district’s offerings. By virtue of their misrepresentations and omissions, Barcelona and Hinojosa improperly earned hundreds of thousands of dollars in municipal advisory fees. The SEC’s order found that Hinojosa and Barcelona engaged in fraudulent, deceptive, or manipulative acts and breached their fiduciary duties to municipal clients. Without admitting or denying the allegations, Barcelona and Hinojosa consented to a cease-and-desist order and are jointly and severally liable for paying $362,606 in disgorgement and $19,514 in prejudgment interest.  Barcelona was also assessed a civil penalty of $160,000 while Hinojosa was assessed a civil penalty of $20,000. Finally, Hinojosa was barred from association with various regulated entities, including municipal advisors. SEC

April 6, 2018

The SEC announced that three investment advisers have settled charges for breaching fiduciary duties to clients and generating millions of dollars of improper fees in the process. According to the SEC’s orders, PNC Investments LLC, Securities America Advisors Inc., and Geneos Wealth Management Inc. failed to disclose conflicts of interest and violated their duty to seek best execution by investing advisory clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available. The SEC also charged Geneos for failing to identify its revised mutual fund selection disclosures as a “material change” in its 2017 disclosure brochure. Collectively, the firms will pay almost $15 million, with more than $12 million going to harmed clients. The SEC’s orders find that PNCI, SAA, and Geneos each violated provisions of the Investment Advisers Act of 1940, including an antifraud provision. Without admitting or denying the findings, the advisers each consented to a cease-and-desist order and a censure. The orders require PNCI to pay $6,407,770 in disgorgement and prejudgment interest along with a $900,000 penalty. SAA must pay $5,053,448 in disgorgement and prejudgment interest along with a $775,000 penalty. Geneos must pay $1,558,121 in disgorgement and prejudgment interest along with a $250,000 penalty. SEC

April 6, 2018

The SEC has obtained a court order freezing more than $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of Longfin Corp. stock involving the company, its CEO, and three other affiliated individuals. According to a complaint unsealed today in federal court in Manhattan, shortly after Longfin began trading on NASDAQ and announced the acquisition of a purported cryptocurrency business, its stock price rose dramatically and its market capitalization exceeded $3 billion. The SEC alleges that Dorababu Penumarthi, Suresh Tammineedi, and their co-conspirators then illegally sold large blocks of their restricted Longfin shares to the public while the stock price was highly elevated. Through their sales, Penumarthi, Tammineedi, and others collectively reaped more than $27 million in profits. SEC

April 2, 2018

The SEC charged Sohrab “Sam” Sharma and Robert Farkas two co-founders of a purported financial services start-up with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. Criminal authorities separately charged and arrested both defendants. The SEC's complaint alleges that Sharma and Farkas, co-founders of Centra Tech. Inc., masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a "CTR Token." Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products. They claimed, for example, to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender.  In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard. The SEC also alleges that to promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media. SEC