Regulatory Violations

May 23, 2017

The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Kenneth A. Marra of the U.S. District Court for the Southern District of Florida entered a Consent Order against Guardian Asset Group, LLC (Guardian) of West Palm Beach, Florida, and its owner and principal, Andrew Kurzbard, with a last-known address in Hacksneck, Virginia, finding that Guardian and Kurzbard engaged in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis. The Order requires Guardian and Kurzbard, jointly and severally, to pay restitution of $434,413.54 and a $651,620.31 civil monetary penalty. The Order also imposes permanent trading and registration bans against Guardian and Kurzbard and prohibits them from further violating the Commodity Exchange Act, as charged. The Order stems from a CFTC civil enforcement action filed against Guardian and Kurzbard on September 30, 2015, charging them with engaging in illegal, off-exchange precious metals transactions (see CFTC Complaint and Press Release 7257-15). CFTC

May 11, 2017

Public companies must properly disclose perks, benefits, and other forms of compensation paid to CEOs and certain other highly compensated executive officers.  The Securities and Exchange Commission today announced that Miles S. Nadal the former CEO of a marketing company has agreed to pay $5.5 million to settle charges that his perks were not properly disclosed to shareholders. According to the SEC’s order, shareholders were informed in annual filings that Nadal received an annual perquisite allowance of $500,000 in addition to other benefits as the chairman and CEO of MDC Partners.  But the SEC’s investigation found that without disclosing information to investors as required, MDC Partners paid for Nadal’s personal use of private airplanes as well as charitable donations in his name, yacht and sports car expenses, cosmetic surgery, and a wide range of other perks.  All total, Nadal improperly obtained an additional $11.285 million in perks beyond his disclosed benefits and $500,000 annual allowances.  He has since resigned and returned $11.285 million to the company. SEC

May 9, 2017

The Securities and Exchange Commission today charged David R. Humphrey, a former SEC employee, with securities fraud in connection with his trading of options and other securities. The SEC’s complaint alleges that David R. Humphrey, who worked at the SEC from 1998 to 2014, concealed his personal trading from the SEC’s ethics office and later misrepresented his trading activities to the SEC’s Office of Inspector General when questioned during an investigation.  “As alleged in our complaint, Humphrey never sought pre-clearance for his prohibited options trades and he filed forms that falsely represented his securities holdings,” said Gerald W. Hodgkins, Associate Director in the SEC’s Division of Enforcement.  SEC employees are subject to rigorous rules regarding securities transactions to guard against even the appearance of using public office for private gain.  The ethics rules specifically prohibit trading in options or derivatives.  The rules also require staff to disclose their securities holdings and transactions to the agency’s ethics office in annual filings. According to the SEC’s complaint, Humphrey violated the rules by engaging in transactions involving derivatives, failing to obtain pre-clearance before trading non-prohibited securities, and failing to hold securities for the required period. SEC

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

April 20, 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 Central District of California, Eastern Division, against Capitol Equity FX LLC (Capitol Equity), a purported hedge fund operating in California, and its principals and agents, Robert Leland Johnson IV and Marisa Elena Johnson, both of Chino, California (collectively, Defendants). The CFTC Complaint, filed on April 19, 2017, charges Defendants with commodity futures fraud; off-exchange, leveraged or margined retail foreign currency (forex) fraud; commodity pool fraud; and failure to register with the CFTC, as required. The Complaint also charges Capitol Equity with engaging in activities prohibited for a commodity pool operator, including commingling customer funds with Defendants’ personal funds. CFTC

March 27, 2017

The SEC announced an emergency asset freeze and temporary restraining order against Chicago-based investment advisor David H. Glick and his unregistered financial management company Financial Management Strategies (FMS) accused of scamming elderly investors out of millions of dollars.  The SEC alleges that Glick and FMS provided clients with false account statements to hide Glick’s use of client funds to pay personal and business expenses, purchase a Mercedes-Benz, and pay of loans and debts.  According to the SEC’s complaint, Glick was barred by FINRA in 2014 and had his Certified Financial Planner designation and Certified Public Accountant license revoked for conduct related to the SEC’s charges. SEC

March 27, 2017

The SEC announced fraud charges and an emergency asset freeze against LottoNet Operating Corp, its CEO David Gray, and its top sales agent Joseph A. Vitale.  The SEC’s complaint alleges that the defendants misrepresented to investors that their money would be used to develop and market LottoNet and that sales agents did not receive commissions.  In fact, at least 35 percent of investor proceeds were allegedly paid to boiler room sales agents in the form of commissions, and LottoNet allegedly siphoned investor funds for personal spending on clothing, wedding-related expenses, and strip clubs.  The SEC complaint further alleges that Vitale, who personally raised at least $1.4 million from investors, used the alias Donovan Kelly in an apparent attempt to hide form investors that he is permanently barred by FINRA. SEC

March 9, 2017

California-based marijuana “consulting” company Medbox and its founder Vincent Mehdizadeh will pay $12 million to settle allegations of falsely touting “record” revenue numbers to investors and claiming to be a “leader” in the marijuana industry while some of the company’s earnings came from sham transactions with a secret affiliate.  According to the SEC’s complaint, Medbox claimed to sell vending machines capable of dispensing marijuana on the basis of biometric identification.  The SEC alleges that Mehdizadeh created a shell company called New-Age Investment Consulting, installed his then-fiancé, Yocelin Legaspi, as its CEO, and caused it to carry out illegal stock sales and used the proceeds from those sales to boost Medbox’s revenue.  Medbox allegedly issued press releases headlining the phony revenues as record earnings to legitimize itself as a viable commercial operation when in fact nearly 90 percent of the company’s revenue in the first quarter of 2014 stemmed from sham transactions with New-Age.  The SEC also charged Medbox’s then-CEO Bruce Bednick with being complicit in the scheme and personally profiting.  The SEC also charged New-Age and Legaspi with unlawfully selling unregistered securities.  The SEC’s litigation against Bedrick, Legaspi, and New-Age continues. SEC

April 4, 2017

A Kansas-based insurance company has agreed to pay more than $2.8 million to settle allegations that it used deceptive and unlawful practices to sell health insurance to Massachusetts consumers. The settlement will provide more than $2.3 million to consumers. According to the complaint, Unified Life Insurance Company (ULIC) sold health insurance to Massachusetts consumers that was not authorized for sale and engaged in a host of deceptive practices, such as claiming its insurance included services that it did not cover. According to the AG’s complaint, ULIC also excluded Massachusetts consumers from coverage based upon their health status or preexisting conditions, and failed to cover basic health services – such as behavioral health services, maternity services, preventive services for women and children, and other essential benefits required by Massachusetts law. The coverage at issue was sold across state lines and was issued through a third-party association. MA