SEC Fraud Actions

SEC
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The Securities and Exchange Commission (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. The SEC was created a few years after the market crash of 1929 through passage of the Securities Exchange Act of 1934. The SEC’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The federal securities laws, and the SEC’s efforts to enforce them, focus on achieving these goals by: (1) requiring companies offering securities to the public to tell the truth about their businesses, the securities being sold, and the risks involved in investing; and (2) requiring those who sell and trade securities to treat investors fairly and honestly.

In July 2010, in response to the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. One important feature of this legislation was the establishment of the SEC whistleblower program. This program encourages those with knowledge of violations of the federal securities laws to share this information with the SEC by providing both monetary rewards and protection against retaliation by employers.

Below are summaries of the most recent enforcement actions litigated by the SEC. If you believe you have information about securities fraud, please click here to contact one of our experienced whistleblower attorneys.

June 19, 2018 - 

The SEC has filed charges to shut down a $102M Ponzi scheme that affected investors throughout the US. According to the complaint, the scheme defrauded over 600 investors though sales of securities that the issuers controlled. The complaint charges five individuals and three companies with wrongdoing; it was filed in federal court in New York. SEC

June 12, 2018 - 

Merrill Lynch, Pierce, Fenner & Smith Inc. has agreed to pay over $15 million to resolve allegations that its traders and salespersons overcharged Merrill Lynch customers for Residential Mortgage Backed Securities, pocketing the mark-ups as undisclosed commissions. According to the Commission, the bank failed to reasonably supervise its employees and to implement measures to prevent and detect the fraud. SEC

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 31, 2018 - 

The SEC charged an employee of a prominent investment bank with repeatedly using his access to highly confidential information in order to place illicit and profitable trades in advance of deals on which the bank was providing investment banking advisory services. According to the SEC’s complaint, Woojae “Steve” Jung, a Vice President of Investment Banking who worked in the bank’s San Francisco and New York offices, used sensitive client information in order to trade in the securities of 12 different companies prior to the announcement of market-moving events. The SEC alleges that between 2015 and 2017, Jung used an account held in the name of a friend living in South Korea to place these illegal trades and generate profits of approximately $140,000. As alleged in the complaint, by using his friend’s brokerage account, Jung attempted to evade detection by skirting his employer’s requirements that he pre-clear his trades and that he use an approved brokerage firm that would have reported the trading to his employer. SEC

May 30, 2018 - 

The SEC charged a former registered representative with defrauding long-standing brokerage customers in an $8 million investment scam. According to the SEC’s complaint, Steven Pagartanis, who was affiliated with a registered broker-dealer, told some investors – including retirees who had been Pagartanis’s customers for many years – that he would invest their funds in either a publicly-traded or private land development company. He promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments. At Pagartanis’s direction, his investors wrote checks payable to a similarly-named entity that was secretly controlled by Pagartanis. In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers. To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies. SEC

May 29, 2018 - 

The SEC announced it has obtained a court order halting an ongoing fraud involving an initial coin offering (ICO) that raised as much as $21 million from investors in and outside the U.S. The court also approved an emergency asset freeze and the appointment of a receiver for Titanium Blockchain Infrastructure Services Inc., the firm behind the alleged scheme. An SEC complaint unsealed today charges that Titanium President Michael Alan Stollery, a/k/a Michael Stollaire, a self-described “blockchain evangelist,” lied about business relationships with the Federal Reserve and dozens of well-known firms, including PayPal, Verizon, Boeing, and The Walt Disney Company. The complaint alleges that Titanium’s website contained fabricated testimonials from corporate customers and that Stollaire publicly – and fraudulently –claimed to have relationships with numerous corporate clients. The complaint alleges that Stollaire promoted the ICO through videos and social media and compared it to investing in “Intel or Google.” SEC

May 16, 2018 - 

The SEC announced fraud charges against three former Constellation Healthcare Technologies Inc. executives who falsified financial and other information they provided to a private firm in the course of negotiating the private firm’s acquisition of a majority stake in Constellation. Houston-based Constellation filed for bankruptcy in March, a little more than a year after the January 2017 acquisition. According to the SEC’s complaint, the executives convinced a private firm to acquire a majority of Constellation’s equity and provided fake information, including financial statements for three fictitious subsidiaries supposedly acquired for more than $62 million. The complaint alleges that the former executives funded the sham acquisitions with stock sales in London and then diverted the proceeds to themselves. The complaint charges former Constellation chief executive Parmjit (Paul) Parmar, former chief financial officer Sotirios (Sam) Zaharis, and former company secretary Ravi Chivukula. In September 2017, amid concerns about Constellation’s financial condition, Parmar resigned and Zaharis and Chivukula were put on administrative leave. SEC

May 16, 2018 - 

The SEC charged the owner of a Manhattan-based alternative investment firm with misappropriating close to $6 million in investor funds earmarked to finance the construction of an international airport in Belize. The SEC’s complaint alleges that between 2014 and 2017, Brent Borland sold more than $21 million of promissory notes to dozens of investors, promising that the funds would be used as bridge financing for development of an international airport in Placencia, Belize, and that the investments would be protected by pledges of real estate as collateral. Borland marketed and sold the notes through two companies, Borland Capital Group LLC, which purports to be active in “alternative investment,” and Belize Infrastructure Fund I, LLC, which purports to be in the business of construction finance. 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 15, 2018 - 

The SEC charged four individuals for their roles in a fraudulent scheme that generated nearly $34 million from unlawful stock sales and caused significant harm to retail investors. The SEC’s complaint charges Francisco Abellan Villena, Guillermo Ciupiak, James B. Panther Jr., and attorney Faiyaz Dean. According to the SEC’s complaint, the defendants manipulated the market for and illegally sold the stock of microcap issuer Biozoom Inc. As part of the alleged scheme, the defendants hid their ownership and sales of Biozoom shares by using offshore bank accounts, sham legal documents, a network of nominees, anonymizing techniques, and other deceptive practices. The defendants also allegedly directed a wide-ranging promotional campaign and employed sophisticated, manipulative trading techniques to artificially inflate Biozoom’s share price. The alleged scheme culminated in the defendants’ illegal sales of Biozoom, which netted them nearly $34 million in unlawful proceeds. SEC

May 9, 2018 - 

The SEC announced that it has charged New York-based investment adviser Premium Point Investments LP with inflating the value of private funds it advised by hundreds of millions of dollars. The SEC also charged Premium Point’s CEO and chief investment officer Anilesh Ahuja as well as Amin Majidi, a former partner and portfolio manager at the firm, and former trader Jeremy Shor. According to the SEC’s complaint, the scheme ran from at least September 2015 through March 2016 and relied on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities (MBS). In addition, the defendants allegedly used “imputed” mid-point valuations, which were applied in a manner that further inflated the value of securities. This practice allegedly boosted the value of many of Premium Point’s MBS holdings and further exaggerated returns. The complaint alleges that the defendants overstated the funds’ value in order to conceal poor fund performance and attract and retain investors. 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

May 8, 2018 - 

The SEC announced the hedge fund advisory firm Visium Asset Management LP has agreed to settle charges related to asset mismarking and insider trading by its privately managed hedge funds and portfolio managers. Separately, the firm’s CFO agreed to settle charges that he failed to respond appropriately to red flags that should have alerted him to the asset mismarking. The SEC’s order finds that two portfolio managers of New York-based Visium falsely inflated the value of securities held by hedge funds it advised, causing the funds to falsely inflate returns, overstate their aggregate net asset value, and pay approximately $3.15 million in excess fees to Visium. The order also finds that certain Visium portfolio managers traded in the securities of pharmaceutical companies in advance of two generic drug approvals by the U.S. Food and Drug Administration (FDA). The trades were based on confidential information received from a former FDA official working as a paid consultant to Visium. Trades were also made in the securities of home healthcare providers in advance of a proposed cut to certain Medicare reimbursement rates by the Centers for Medicare and Medicaid Services (CMS), based on confidential information received from a former CMS employee working as a paid consultant to Visium. Visium agreed to settle the SEC’s charges by, among other things, disgorging illicit profits totaling more than $4.7 million plus interest of $720,711, and paying a penalty of more than $4.7 million. Ku agreed to pay a $100,000 penalty and to be suspended from the securities industry for twelve months. Visium and Ku each consented to the applicable SEC order without admitting or denying the findings. SEC

May 1, 2018 - 

The SEC announced the unsealing of fraud charges against a Mississippi company and its principal who allegedly bilked at least 150 investors in an $85 million Ponzi scheme. The defendants agreed to permanent injunctions, an asset freeze, and expedited discovery. The SEC’s complaint alleges that Arthur Lamar Adams lied to investors by telling them that their money would be used by his company, Madison Timber Properties, LLC, to secure and harvest timber from various land owners located in Alabama, Florida, and Mississippi, and promised annual returns of 12-15%. But Madison Timber never obtained any harvesting rights. Instead, Adams allegedly forged deeds and cutting agreements as well as documents purportedly reflecting the value of the timber on the land. Adams also allegedly paid early investors with later investors’ funds and convinced investors to roll over their investments. According to the complaint, Adams used investors’ money for personal expenses and to develop an unrelated real estate project. SEC

April 30, 2018 - 

The SEC announced that Japan-based Panasonic Corp. will pay more than $143 million to resolve charges of Foreign Corrupt Practices Act (FCPA) and accounting fraud violations involving its global avionics business. According to the SEC’s order, Panasonic’s U.S. subsidiary, Panasonic Avionics Corp. (PAC), a provider of in-flight entertainment and communication systems, offered a lucrative consulting position to a government official at a state-owned airline to induce the official to help PAC in obtaining and retaining business from the airline. At the time it orchestrated the bribery scheme, PAC was negotiating two agreements with the airline valued at more than $700 million. PAC ultimately retained the official and paid approximately $875,000 for a position that required little to no work, using an unrelated third-party vendor to conceal the payments. SEC

April 24, 2018 - 

The SEC announced that the entity formerly known as Yahoo! Inc. has agreed to pay a $35 million penalty to settle charges that it misled investors by failing to disclose one of the world’s largest data breaches in which hackers stole personal data relating to hundreds of millions of user accounts. According to the SEC’s order, within days of the December 2014 intrusion, Yahoo’s information security team learned that Russian hackers had stolen what the security team referred to internally as the company’s “crown jewels”: usernames, email addresses, phone numbers, birthdates, encrypted passwords, and security questions and answers for hundreds of millions of user accounts. Although information relating to the breach was reported to members of Yahoo’s senior management and legal department, Yahoo failed to properly investigate the circumstances of the breach and to adequately consider whether the breach needed to be disclosed to investors. The fact of the breach was not disclosed to the investing public until more than two years later, when in 2016 Yahoo was in the process of closing the acquisition of its operating business by Verizon Communications, Inc. SEC

April 20, 2018 - 

The SEC announced additional fraud charges stemming from an investigation of Centra Tech Inc.’s $32 million initial coin offering. In an amended complaint filed today, the SEC charged one of Centra’s co-founders, Raymond Trapani, in a fraudulent scheme related to Centra’s 2017 ICO, in which the company issued “CTR Tokens” to investors. Earlier this month, the SEC and criminal authorities charged Centra’s two other co-founders, Sohrab “Sam” Sharma and Robert Farkas, for their roles in the scheme. The SEC’s amended complaint alleges that Trapani was a mastermind of Centra’s fraudulent ICO, which Centra marketed with claims about nonexistent business relationships with major credit card companies, fictional executive bios, and misrepresentations about the viability of the company’s core financial services products. The amended complaint further alleges that Trapani and Sharma manipulated trading in the CTR Tokens to generate interest in the company and prop up the price of the tokens. SEC

April 12, 2018 - 

The SEC announced a whistleblower award of more than $2.1 million to a former company insider whose information led to multiple successful enforcement actions. The whistleblower’s information strongly supported the findings in the underlying actions and the whistleblower provided ongoing assistance to the staff during the investigation. “The SEC has issued nearly $90 million in whistleblower awards in the past month alone,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “As these awards demonstrate, we continue to receive high-quality information from whistleblowers, which we use to detect and prosecute securities violations and safeguard investors.” Since issuing its first award in 2012, the SEC has awarded more than $266 million to 55 individuals under the whistleblower program. In that time, almost $1.5 billion in monetary sanctions have been ordered against wrongdoers based on actionable information received from whistleblowers, including more than $740 million in disgorgement of ill-gotten gains and interest, the majority of which has been or is scheduled to be returned to harmed investors. SEC

April 9, 2018 - 

The SEC charged two Texas companies and their principals in a $2.4 million Ponzi scheme and in a related, $1.4 million offering fraud targeting retirees. The SEC’s complaint alleges that, from 2010 to 2017, Clifton E. Stanley ran a Ponzi scheme through his retirement planning and real estate investment business, The Lifepay Group, LLC. Stanley is alleged to have lured at least 30 elderly victims to invest approximately $2.4 million of their retirement savings with baseless promises and claims of outsized investment returns. He kept the scheme afloat for years by paying early investors with later investors’ funds and by convincing investors to roll over their investments.  The SEC further alleges that Stanley pilfered from the estate of an elderly woman’s family trust, diverting nearly $100,000 to fund the Lifepay Ponzi scheme. In addition, the SEC’s complaint alleges that, beginning in 2015, Stanley and Michael E. Watts orchestrated a second offering fraud through a company they controlled, SMDRE, LLC. Stanley and Watts allegedly used a collection of misrepresentations and empty promises to convince a group of predominantly elderly victims to invest roughly $1.4 million in SMDRE. 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 Amro Izzelden “Andy” Altahawi, Dorababu Penumarthi, and Suresh Tammineedi then illegally sold large blocks of their restricted Longfin shares to the public while the stock price was highly elevated. Through their sales, Altahawi, Penumarthi, and Tammineedi collectively reaped more than $27 million in profits. SEC

April 5, 2018 - 

The SEC charged convicted felon and former NHL team owner Peter H. Pocklington, his medical device company, and others with defrauding investors by hiding Pocklington’s recidivist history and by misappropriating investor funds. The SEC alleges that in 2010, Pocklington pleaded guilty to a federal felony perjury charge and was later ordered to pay over $5 million as part of a settlement for unrelated state securities fraud and registration charges. Pocklington subsequently founded and now controls California-based The Eye Machine LLC (now known as Nova Oculus Partners LLC), a medical device company that raised over $14 million between 2014 and 2017 from more than 260 investors in unregistered offeringsAccording to the SEC’s complaint, Pocklington and his attorney, Lantson E. Eldred, structured the ownership of The Eye Machine to conceal Pocklington’s role with the company and held Eldred out as the company’s “visual front.”  In the offerings, Pocklington, Eldred, and The Eye Machine allegedly failed to disclose Pocklington’s checkered history and involvement, and misrepresented how investor funds would be spent. Pocklington allegedly misappropriated over $600,000 of investor funds for personal use, including funding his gold mining companies and paying personal legal and credit card bills. The complaint also alleges that The Eye Machine paid millions of dollars in undisclosed and excessive sales commissions to defendants Yolanda C. Velazquez, Vanessa Puleo, and Robert A. Vanetten, who acted as unregistered brokers for the company. According to the complaint, Velazquez – whom the SEC previously barred from acting as a broker-dealer – and Puleo used “boiler room” operations in Florida to “cold call” investors. SEC

April 5, 2018 - 

The SEC announced a whistleblower award of more than $2.2 million to a former company insider whose tips helped the agency open an investigation that led to an enforcement action. The whistleblower first reported the information to another federal agency and later provided the same information to the SEC. This is the first award paid under the “safe harbor” of Exchange Act Rule 21F-4(b)(7), which provides that if a whistleblower submits information to another federal agency and submits the same information to the SEC within 120 days, then the SEC will treat the information as though it had been submitted to the SEC at the same time that it was submitted to the other agency. 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