Avoid Being Scammed
The best way to avoid losing money in advance-fee, phishing or other types of scams is simply to hang up or not respond. This is easier said than done, since correspondence can be well crafted, and the perpetrators are con artists highly skilled at delivering their fraudulent pitches. If you are suspicious about an offer, or think the claims you are receiving might be exaggerated or misleading, contact FINRA or another regulator BEFORE you send any money.
$1 MM Hedge fund fraud
Federal authorities claim a Miami-based asset manager defrauded two of his clients out of more than $1 million by first concealing that their money was misappropriated by hedge fund operator and convicted fraudster Nicholas Mitsakos, and then saying after Mitsakos’ arrest that their investment had been lost completely. Filings state that John Geraci, 61, engaged in a fraud scheme by creating a fund managed by Mitsakos.
Pump and Dump
A Florida man who copped to helping orchestrate a pump-and-dump scheme that caused $19 million in investor losses was sentenced Friday in Connecticut federal court to seven years in prison and ordered to pay $5.3 million in restitution, according to the U.S. Department of Justice. William Lieberman, 42, got 84 months in prison followed by three years of supervised release, prosecutors said. He also owes $436,235 to the IRS related to charges he failed to pay taxes.
Russian Hacker Fraud
Glen Mills, Pennsylvania preacher, and former registered representative, Vitaly Korchevsky (“Korchevsky”) and former registered representative Vladislav Khalupsky (“Khalupsky”) were charged by the SECover 30 others with securities fraud for trading on hacked press releases. The SEC charged that Ukrainian hackers used advanced techniques to hack into newswire services and steal hundreds of corporate earnings releases before the newswires released them publicly. The SEC charged that the hackers created a secret web-based location to transmit the stolen data to traders in Russia, Ukraine, Cyrpus, France, and three U.S. states, Pennsylvania, New York, and Georgia. The traders are alleged to have used this nonpublic information in a short window of opportunity to place illicit trades in stocks, options, and other securities, sometimes funneling a portion of their illegal profits to the hackers. Previously, in parallel criminal actions in the Eastern District of New York and District of New Jersey, defendants Arkadiy Dubovoy, Igor Dubovoy, Aleksandr Garkusha, and Leonid Momotok, who are also defendants in the SEC case, pleaded guilty to criminal conduct.
$33 Million Dakota Plains Swindle
On June 26, 2018, Ryan Gilbertson, a Minnesota man previously accused by the SEC of orchestrating an elaborate scheme to siphon millions of dollars from Dakota Plains Holdings, Inc., was convicted on 21 counts of wire fraud, securities fraud, and conspiracy to commit securities fraud. Douglas Hoskins, who was also named in the SEC’s complaint, was convicted on 6 counts of wire fraud, securities fraud, and conspiracy to commit securities fraud. The charges upon which Gilbertson and Hoskins were convicted arise from the same conduct alleged by the SEC.
According to the SEC’s complaint, filed in federal court in Minnesota on October 31, 2016, Gilbertson and another company co-founder, installed their fathers as figurehead executives in order to secretly wield control of the company and issue millions of shares of stock to themselves, family, and friends. They allegedly later hired one of their friends as CEO. They allegedly caused the company to enter into an agreement to borrow money from them under generous terms that included extra bonus payments to Gilbertson, and other lenders based on the price of Dakota Plains stock after 20 days of trading following a reverse merger into a company with publicly-traded shares.
According to the SEC’s complaint, Gilbertson enlisted friends and associates including Douglas Hoskins to choreograph extensive sales and purchases of Dakota Plains stock and cause the price to skyrocket from 30 cents to more than $12 per share during that 20-day period. The allegedly inflated stock price obligated Dakota Plains to make bonus payments totaling $32,851,800 to Gilbertson and others. After meeting his target to receive the bonus payments, Gilbertson ceased his alleged manipulation efforts. The stock price then steadily declined to pennies per share and the company was eventually delisted. Sentencing is scheduled for November 13, 2018 for Gilbertson and November 15, 2018 for Hoskins.
Microcap fraud trading schemes
The Securities and Exchange Commission has charged a stock promoter and four others involved in an alleged series of microcap fraud schemes that were foiled by FBI undercover work and an SEC trading suspension. According to the SEC’s complaint filed in federal court in southern California on July 6, stock promoter Gannon Giguiere took control of a purported medical device company. Giguiere, together with a Cayman Islands-based broker, then allegedly engaged in a matched trading scheme that caused the company’s share price to rise from zero to $1.20 per share. Giguiere and the brokerage owner, Oliver-Barret Lindsay, allegedly coordinated their matched trading through an individual who turned out to be an FBI cooperating witness.
According to the complaint, despite extensive encrypted communications, the defendants were caught by an undercover FBI operation that recorded their communications, with Lindsay going so far as to tell an individual cooperating with the FBI, “I’m a little hesitant about typing all of these details into this app. … You can just imagine if it finds its way somewhere it’s fairly incriminating.” According to the complaint, the pair’s plan to dump millions of shares in the purported medical device company was thwarted when, this past March, the SEC suspended trading in the securities of the purported medical device company. The SEC’s complaint also charges three others who began laying the groundwork for a pump-and-dump scheme involving a purported digital media company. The SEC alleges that Kevin Gillespie, Annetta Budhu, and Andrew Hackett entered into a number of sham stock and debt issuances, and Hackett wound up communicating with someone he believed to be a participant in the scheme who in reality was an undercover FBI agent. “As alleged in our complaint,
“As alleged in our complaint, these stock traders hijacked companies and manipulated the market to enrich themselves at the expense of the investing public. Law enforcement is committed to rooting out microcap fraud and exposing it no matter how encrypted or complex such schemes may be,” said Marc P. Berger, Director of the SEC’s New York Office.
Family Affair Insider Trading
On July 24, 2018, the Securities and Exchange Commission charged Matthew Brunstrum, formerly a financial analyst at Stericycle, Inc., with insider trading and with tipping his mother, who was also charged with insider trading. The SEC’s complaint, filed in federal court in Chicago, alleges that in April 2016, Matthew Brunstrum learned through his job that Stericycle’s first quarter 2016 financial results would be much worse than had been expected and used this material non-public information to trade in Stericycle securities in advance of the company’s upcoming April 28, 2016 earnings announcement. The complaint also alleges that Matthew Brunstrum disclosed Stericycle’s earnings information to his mother who traded on that information. Stericycle’s stock fell by $26.18 the day after Stericycle announced its first quarter financial results, losing almost 22 percent of its value. The SEC’s complaint alleges that as a result of their illegal trading, Matthew Brunstrum avoided losses and earned profits in the amount of $159,904, and Susan Brunstrum avoided losses and earned profits in the amount of $170,252.
“Financial Visions” Swindle
The Securities and Exchange Commission today announced the unsealing of fraud charges against a group of companies and their principal who allegedly bilked at least 150 investors in a $55 million Ponzi scheme. The SEC obtained an emergency asset freeze and other relief. According to the SEC’s complaint, Daniel B. Rudden and a group of companies operating under the name Financial Visions, which issued promissory notes to fund its operations in short-term financing for funeral services and related expenses, defrauded as many as 150 investors after promising them annual returns of 12% or more. The complaint alleges that since 2010 or 2011, Rudden used new investor funds to pay interest and redemptions to existing investors and concealed the Financial Visions companies’ true financial performance and condition. The complaint also alleges that Rudden continued to represent the business as successful to existing and prospective investors when he knew that he was running a Ponzi scheme.
Pot Fraud
The Securities and Exchange Commission today charged a Texas-based investment fund and its founder with defrauding investors with false promises of massive returns in cannabis-related businesses. The SEC also issued an alert to warn retail investors about marijuana-related securities offerings. The SEC’s complaint alleges that Greenview Investment Partners L.P. and its founder Michael E. Cone used misleading marketing materials in raising more than $3.3 million from investors. Cone allegedly employed boiler room sales staff who made cold calls to investors and promised them up to 24 percent annual returns from investments in Greenview. According to the complaint, Cone used an alias to conceal his prior criminal convictions, lied about having a former agent from the U.S. Drug Enforcement Administration on staff, and falsely claimed to have a long record of profitably investing millions in cannabis-related businesses.
The complaint alleges that, in reality, Greenview had no track record and its sole investment of $400,000 was in a cannabis company that had yet to harvest a crop. According to the complaint, Cone spent investors’ money on designer clothes and luxury cars, and on payments to earlier investors to prolong the alleged scheme. In a parallel criminal proceeding, the U.S. Attorney’s Office for the Central District of California charged Cone and seized approximately $1.4 million in cash and assets. “Greenview allegedly exploited investor interest in the marijuana industry and lied about high returns and the backgrounds of its key executives,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office. “Investors must remain vigilant and not let the fear of missing out dupe them into making bad investment decisions.”
Day Trading Fraud
The Securities and Exchange Commission today charged two Michigan men with fraud for their roles in a fake accounts scheme perpetrated by a phony day-trading firm, Nonko Trading. The SEC alleges that Jeffrey Goldman of West Bloomfield, Michigan, and Christopher Eikenberry of Birmingham, Michigan, participated in and profited from a scheme to defraud Nonko’s customers out of at least $1.4 million. While Nonko marketed itself as a state-of-the-art platform for daytrading professionals, the SEC alleges that it secretly provided customers with training accounts that merely simulated actual trading. Nonko team members allegedly pocketed customers’ deposits and used the money for personal expenses and for Ponzi-like payments to customers who wanted to close their accounts.
According to the complaint, Nonko deliberately targeted traders who were inexperienced or had a history of trading losses and lured them by promising generous leverage, low trading commissions, and low minimum deposit requirements. “As alleged in our complaint, Goldman and Eikenberry actively concealed their involvement in the alleged fraud and took steps to evade U.S. brokerdealer registration requirements,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “But, behind the scenes, they were active and knowing participants in the scheme, which caused losses to more than 260 investors.” In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Goldman and Eikenberry.
Fake Music Festival Supports Lavish Lifestyle
The Securities and Exchange Commission today announced that New York entrepreneur William Z. (Billy) McFarland, two companies he founded, a former senior executive, and a former contractor agreed to settle charges arising out of an extensive, multi-year offering fraud that raised at least $27.4 million from over 100 investors.
The SEC’s complaint alleges that McFarland fraudulently induced investments into his companies Fyre Media, Inc., Fyre Festival LLC, and Magnises, Inc., including in connection with McFarland’s failed venture to host a “once-in-a-lifetime” music festival in the Bahamas. With substantial assistance from Grant H. Margolin, his Chief Marketing Officer, and Daniel Simon, an independent contractor to his companies, McFarland induced investors to entrust him with tens of millions of dollars by fraudulently inflating key operational, financial metrics and successes of his companies, as well as his own personal success – including by giving investors a doctored brokerage account statement purporting to show personal stock holdings of over $2.5 million when, in reality, the account held shares worth under $1,500. McFarland used investor funds to bankroll a lavish lifestyle including living in a Manhattan penthouse apartment, partying with celebrities, and traveling by private plane and chauffeured luxury cars.
“McFarland gained the trust of investors by falsely portraying himself as a skilled entrepreneur running a series of successful media companies. But this false picture of business success was built on fake brokerage statements and stolen investor funds,” said Melissa Hodgman, Associate Director of the SEC’s Enforcement Division.
NO ONE IS LOOKING OUT FOR YOU
Ten years after the collapse of Lehman Brothers, and despite Congress’s efforts to protect Mom and Pop with the 2010 Dodd-Frank Act, the small investor is increasingly vulnerable to shoddy practices on Wall Street. Dodd-Frank was passed to rein in too-big-to-fail banks and establish new protections for consumers and investors. That included marching orders for the Securities and Exchange Commission to look into reforms meant to level the playing field between everyday investors and the sales agents who try to separate them from their money. In the years since then, instead of enacting more rigorous requirements for the nation’s 629,032 stockbrokers, the agency has proposed a code that isn’t much stricter than the rules we already have.
The S.E.C. has also chosen to do nothing with the authority it received with Dodd-Frank to unshackle investors from contracts that prevent them from taking brokers to court when things go off the rails. The agency’s official actions and failures to act are not the only problem.
Last month, Hester Peirce, an S.E.C. commissioner appointed by President Trump, threw out a bombshell, signaling that she would support requests from companies looking to block shareholders from bringing class-action lawsuits. Ms. Peirce told Politico that public companies “absolutely” should have the option of demanding arbitration instead of allowing class-wide court actions to proceed.
NO PROTECTION FOR US
Mr. Clayton, however, recently promoted an idea that similarly is favorable to business. He told an audience in Nashville last month that the S.E.C. is studying various issues concerning private securities, including whether they should be made available to a larger universe of investors. The agency now limits private offerings to wealthy investors. Privately held companies provide far less information about their operations than public companies do, making them a risky bet for individuals. Big institutional investors, by comparison, have the tools to evaluate those companies. DO you??
Specific Broker Problems
1. Sounds like the “Boom Boom Room” A former New York pension fund director on Thursday was sentenced to just under two years in prison for steering more than $3 billion in business from the New York State Common Retirement Fund to corrupt brokers in return for gifts that ranged from expensive meals to the services of prostitutes. Navnoor Kang was sentenced to 21 months in prison, a far cry from the 10 years sought by the government for the onetime director of fixed income at the NY Pension Fund.
2. Formerly convicted stockbroker back again. Federal authorities filed criminal and civil charges against a former stockbroker on Friday, alleging that within two years of his release from prison for previous convictions, he conspired to manipulate the market for at least three microcap companies in a scheme that netted him at least $3 million. Both prosecutors and the U.S. Securities and Exchange Commission alleged in a Pennsylvania federal court that Howard M. Appel, 57, conspired to gain control.
3. Fast Trading: The Securities and Exchange Commission charged two brokers for recommending excessive levels of trading that were costly for retail customers but lucrative for the brokers. In separate complaints filed in federal court in Manhattan on Friday, the SEC alleges that Florida resident Emil Botvinnik and New York resident Jovannie Aquino recommended frequent, short-term trades that generated large commissions for the brokers but were almost guaranteed to lose money for their customers. According to the SEC’s complaints, Botvinnik’s and Aquino’s customers – a number of whom were at or near retirement age – lost approximately $3.6 million as a result of the trades while the brokers pocketed approximately $4.6 million in commissions. “We are diligently pursuing deceitful brokers who prey on their customers,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement and Chair of the Enforcement Division’s Broker-Dealer Task Force. “Brokers need to ensure that the level of trading they recommend is suitable for their customers, and investors should be on the lookout for frequent trading in their accounts.”
The complaints also allege that both brokers engaged in unauthorized trading and concealed material information from their customers about the transaction costs associated with their recommendations, which were likely to outstrip any potential monetary gains in the accounts. The case follows similar charges of excessive trading by brokers brought in January, September, and December 2017. The SEC previously issued an Investor Alert warning about excessive trading and churning that can occur in brokerage accounts.
4. Petroleum ETF :The Securities and Exchange Commission today announced it has obtained monetary relief that will fully reimburse retail investors for losses on a leveraged oil-linked exchange-traded note (ETN) that registered representatives of Syracuse, New York-based broker-dealer and investment adviser Cadaret, Grant & Co. Inc. recommended without a reasonable basis. The SEC found that Cadaret Grant, president Arthur Grant, and senior vice president Beda Lee Johnson failed reasonably to supervise the firm’s registered representatives who recommended that customers buy and hold the leveraged oil-linked ETN without a reasonable basis. The order found that before recommending the investment, the brokers did not take steps to reasonably research or understand inherent risks of the ETN or the index it tracked. According to the order, the ETN was meant to be a daily trading tool for sophisticated investors and was not designed to be held for more than one day. The brokers mistakenly believed the ETN’s value would increase over time as oil prices increased even though the ETN offered no direct exposure to spot oil prices, and recommended that retail customers buy and hold the ETN indefinitely. The order also finds that Cadaret Grant failed to adopt and implement policies and procedures concerning the sale of exchange traded products in investment advisory accounts.
The SEC charged Eugene Long, the Cadaret Grant broker who recommended the ETN to the greatest number of customers, for recommending the ETN without a reasonable basis. The order found that Long recommended his customers continue to hold the ETN from 2015 and until spring 2016, when his customers’ holdings were sold at an average loss of more than 90 percent of the amounts they invested. “Brokers have an obligation to understand complex products and their risks before recommending them to customers,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “As this action shows, we will continue to hold people accountable at every level for unsuitable recommendations that harm investors and for the failures that allow those recommendations to be made unchecked.”
Without admitting or denying the SEC’s findings, Cadaret Grant agreed to be censured and pay a $500,000 penalty plus $13,194 in disgorgement and interest. Grant and Johnson each agreed to a 12-month supervisory suspension and will pay penalties of $100,000 and $75,000 respectively. Long agreed to be censured and pay a $250,000 penalty. The penalties, disgorgement and interest amounts paid will be placed in a Fair Fund that will reimburse harmed investors for their incurred losses, plus reasonable interest.
5. Excessive Trading The Securities and Exchange Commission charged two brokers for recommending excessive levels of trading that were costly for retail customers but lucrative for the brokers. In separate complaints filed in federal court in Manhattan on Friday, the SEC alleges that Florida resident Emil Botvinnik and New York resident Jovannie Aquino recommended frequent, short-term trades that generated large commissions for the brokers but were almost guaranteed to lose money for their customers. According to the SEC’s complaints, Botvinnik’s and Aquino’s customers – a number of whom were at or near retirement age – lost approximately $3.6 million as a result of the trades while the brokers pocketed approximately $4.6 million in commissions. “We are diligently pursuing deceitful brokers who prey on their customers,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement and Chair of the Enforcement Division’s Broker-Dealer Task Force. “Brokers need to ensure that the level of trading they recommend is suitable for their customers, and investors should be on the lookout for frequent trading in their accounts.” The complaints also allege that both brokers engaged in unauthorized trading and concealed material information from their customers about the transaction costs associated with their recommendations, which were likely to outstrip any potential monetary gains in the accounts.
The case follows similar charges of excessive trading by brokers brought in January, September, and December 2017. The SEC previously issued an Investor Alert warning about excessive trading and churning that can occur in brokerage accounts. They were charged with antifraud violations.
6. Stealing From Client Accounts: The Securities and Exchange Commission today charged a New Jerseybased broker with misusing his access to customers’ brokerage accounts to enrich himself and family members at the expense of his customers, many of whom had entrusted him with their retirement accounts. The SEC uncovered the alleged fraud with data analysis used to detect suspicious trading patterns. The SEC filed fraud charges in federal district court against Michael A. Bressman of Montville, New Jersey, alleging that he misused his access to an omnibus or “allocation” account to obtain at least $700,000 in illicit trading profits over a six-year period ending in February. The SEC’s complaint alleges that Bressman placed trades using the allocation account and cherry-picked profitable trades, which he then transferred to his own account and the account of two family members, while placing unprofitable trades in other customers’ accounts.
In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Bressman.
A Hedge Fund problem
The Securities and Exchange Commission today charged a hedge fund adviser and his investment advisory firm with illegally profiting from a scheme to drive down the price of San Diego-based Ligand Pharmaceuticals Inc., reaping more than $1.3 million of gains for the adviser and the hedge fund. The SEC’s complaint charges that Gregory Lemelson and Massachusettsbased Lemelson Capital Management LLC issued false information about Ligand after Lemelson took a short position in Ligand in May 2014 on behalf of The Amvona Fund, a hedge fund he advised and partly owned. Short-sellers profit when the price of stock declines. According to the SEC’s complaint, Ligand’s stock lost more than one-third of its value during the course of Lemelson’s alleged scheme. After establishing his short position, the complaint charges that Lemelson made a series of false statements to shake investor confidence in Ligand, lower its stock price, and increase the value of his position.
The SEC’s complaint, filed in federal court in Massachusetts, alleges that Lemelson used written reports, interviews, and social media to spread untrue claims, including that Ligand was “teetering on the brink of bankruptcy” and that Ligand’s investor relations firm agreed with his view that its flagship Hepatitis C drug, Promacta, was going to become obsolete. Lemelson also allegedly misled investors by citing a European doctor’s negative views on the same Ligand drug without revealing the doctor was Amvona’s largest investor and had a significant financial interest in seeing Ligand’s stock price decline. “While short-sellers are free to express their opinions about particular companies, they may not bolster those opinions with false statements, which is what we allege Lemelson did here,” said David Becker, an Assistant Director in the SEC’s Division of Enforcement.
The SEC’s complaint charges Lemelson and Lemelson Capital Management with fraud and seeks to have them return allegedly ill-gotten gains with interest and pay monetary penalties. The complaint names the Amvona Fund as a relief defendant and seeks to have it return gains it obtained as a result of Lemelson and his firm’s alleged misconduct.
An RIA problem
The Securities and Exchange Commission today charged an Indianapolisbased investment advisory firm and its sole owner with selling approximately $13 million of high-risk securities to more than 120 advisory clients – many of whom are current or former teachers or other workers in public education – without disclosing that the firm and its owner stood to receive commissions of up to 18 percent from the sales. The SEC’s complaint alleges that from December 2012 to October 2016, Steele Financial Inc. and Tamara Steele sold to advisory clients and other investors more than $15 million of the securities of Behavioral Recognition Systems Inc. (BRS), a private company previously charged with fraud by the SEC.
All told, Steele and Steele Financial received commissions of cash and warrants from BRS that were worth more than $2.5 million. Steele and Steele Financial allegedly targeted their own advisory clients who generally did not invest in individual stocks, selling more than 120 clients approximately $13 million of BRS securities without disclosing that the defendants were receiving commissions from BRS. The complaint further alleges that the defendants created false invoices and took other steps to conceal their involvement selling BRS securities.
“We allege that Steele took advantage of her own advisory clients, including clients whom she herself described as ‘two-pension, two Social Security families,’” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. “Investment advisers must put their clients’ interests ahead of their own and make full and fair disclosure of financial conflicts of interest.”
Pot Fraud
We mentioned this above, in relation to an SEC enforcement action. If you are thinking about investing in a marijuana-related company, you should beware of the risks of investment fraud and market manipulation. Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam. Investment scams are not new and tend to follow predictable patterns.
Look out for these signs of fraud:
◦ Unlicensed, unregistered sellers. Unlicensed, unregistered persons commit many of the securities frauds that target individual, Main Street investors. Check out the background, including registration or license status, of anyone recommending or selling an investment, using the free simple search tool on Investor.gov.
◦ Guaranteed returns. If someone promises you a guaranteed high rate of return on your investment, especially along with a claim of no risk, it likely is a fraudulent scheme.
◦ Unsolicited offers. If someone reaches out to you through social media, an e-mail, a text, or a phone call regarding an investment “opportunity,” it may be part of a scam.
◦ Market Manipulation. Fraudsters may manipulate stock prices (for example, causing them to rise or fall dramatically) by spreading false and misleading information about a company.
Your weekly Crypto Frauds
1. Crypto Asset Management.
The SEC entered an order finding that Crypto Asset Management LP (CAM) offered a fund that operated as an unregistered investment company while falsely marketing it as the “first regulated crypto asset fund in the United States.” According to the SEC’s order, CAM, a Californiabased hedge fund manager, and its sole principal Timothy Enneking raised more than $3.6 million over a four-month period in late 2017 while falsely claiming that the fund was regulated by the SEC and had filed a registration statement with the agency. By engaging in an unregistered non-exempt public offering and investing more than 40 percent of the fund’s assets in digital asset securities, CAM caused the fund to operate as an unregistered investment company. After being contacted by the SEC staff, CAM ceased its public offering and offered buy backs to affected investors. “Hedge funds seeking to ride the digital asset wave continue to proliferate,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. “Investment advisers must be sure that the funds they offer adhere to the applicable registration obligations and must accurately represent their funds’ regulatory status to investors.” CAM and Enneking agreed to the SEC’s cease-and-desist order and censure without admitting or denying the findings against them, and agreed to pay a penalty of $200,000.]
2. TokenLot
The Securities and Exchange Commission today announced that TokenLot LLC, a self-described “ICO Superstore,” and its owners will settle charges that they acted as unregistered broker-dealers. This is the SEC’s first case charging unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws.
According to the SEC’s order, TokenLot, Lenny Kugel, and Eli L. Lewitt promoted TokenLot’s website as a way to purchase digital tokens during initial coin offerings (ICOs) and also to engage in secondary trading. Michigan-based TokenLot received orders from more than 6,100 retail investors and handled more than 200 different digital tokens, which the SEC found included securities. The business’s profits included trading profits and a percentage of the money that TokenLot raised for ICOs. Their activities required TokenLot, Kugel, and Lewitt to be registered with the SEC as broker-dealers, but they were not. TokenLot operated from July 2017 through late February, with most of its business occurring after The DAO Report on the applicability of securities laws to digital assets.
According to the order, in response to the SEC’s investigation, TokenLot voluntarily began winding down and refunding investors’ payments for unfilled orders. TokenLot, Kugel, and Lewitt also were charged with violating the registration provisions in connection with their conduct. “U.S. securities laws protect investors by subjecting broker-dealers and other gatekeepers to SEC oversight, including those offering ICOs and secondary trading in digital tokens,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. Without admitting or denying the SEC’s findings, TokenLot, Kugel, and Lewitt consented to the SEC’s order and agreed to pay $471,000 in disgorgement plus $7,929 in interest, and they will retain an independent third party to destroy TokenLot’s remaining inventory of digital assets. Kugel and Lewitt also agreed to pay penalties of $45,000 each and agreed to industry and penny stock bars and an investment company prohibition with the right to reapply after three years.
3. CAM
The SEC entered an order finding that Crypto Asset Management LP (CAM) offered a fund that operated as an unregistered investment company while falsely marketing it as the “first regulated crypto asset fund in the United States.” According to the SEC’s order, CAM, a Californiabased hedge fund manager, and its sole principal Timothy Enneking raised more than $3.6 million over a four-month period in late 2017 while falsely claiming that the fund was regulated by the SEC and had filed a registration statement with the agency. By engaging in an unregistered non-exempt public offering and investing more than 40 percent of the fund’s assets in digital asset securities, CAM caused the fund to operate as an unregistered investment company. After being contacted by the SEC staff, CAM ceased its public offering and offered buy backs to affected investors.
“Hedge funds seeking to ride the digital asset wave continue to proliferate,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. “Investment advisers must be sure that the funds they offer adhere to the applicable registration obligations and must accurately represent their funds’ regulatory status to investors.” CAM and Enneking agreed to the SEC’s cease-and-desist order and censure without admitting or denying the findings against them, and agreed to pay a penalty of $200,000.
4. Bitcoin Tracker One and Ether Tracker One
The Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities Bitcoin Tracker One (“CXBTF”) and Ether Tracker One (“CETHF”) commencing at 5:30 p.m. EDT on September 9, 2018, and terminating at 11:59 p.m. EDT on September 20, 2018.
Dead fraud
A Georgia federal judge ordered the sole managing member of a cemetery operator to hand over more than $10 million to the U.S. Securities and Exchange Commission on Tuesday following his 2017 conviction for defrauding investors with securities backed by cemeteries the company didn’t actually own. U.S. District Judge Mark H. Cohen granted summary judgment in favor of the SEC, which claims that Detroit Memorial Partners LLC’s principal, Mark Morrow, collected more than $26.7 million in debt and equity securities sold to investors under false pretenses….
Facebook problems
Investors filed at least two proposed securities fraud class actions against Facebook in New York federal court Friday, accusing the company and its top brass of misleading shareholders in the months leading up to its disappointing earnings statement and subsequent $120 billion stock drop. Investors who saw their stock plunge accused Facebook CEO Mark Zuckerberg, above, and other company officials of hiding a decline in the number of users. (AP) Shares of the social media behemoth fell 19 percent on Wednesday after the company reported second-quarter…
]AND – An Alabama public pension fund has asked the Delaware Chancery Court to compel social media giant Facebook Inc. to turn over more of its records related to Cambridge Analytica LLC’s alleged amassing of more than 87 million Facebook users’ private data. The City of Birmingham Relief and Retirement System, in a complaint unsealed late Thursday, said it wants to inspect more records than the company has turned over thus far related to the scandal to determine if there has been any wrongdoing, mismanagement or breach of…
REMEMBER MRS. DAVIS?
At an event for Main Street investors organized by the S.E.C. in Denver in July, a woman named Jaimie Davis said she had lost more than $2 million at the hands of a broker who put almost all of her assets into speculative private placements that were later exposed as a fraud. Forced to use arbitration, she said one of her arbitrators “slept through most of the arbitration.”
Ultimately, she lost the case. Mr. Clayton, who said her story was “the worst” of all the ones he heard in two months of public meetings, promised to look into it. Twelve days later, the agency wrote to Ms. Davis to say there was nothing it could do to help. Typical Regulator.
Does Discover have an ulterior motive in promoting financial literacy?
Here’s another problem in delivering financial education. The organizations most interested in promoting financial literacy are the ones that benefit the most from laws that assume consumers can be educated—and don’t need legal protection from corporate financial predators.
Recently, the Financial Services Roundtable, the lobbying organization representing several dozen leading financial firms, announced a joint financial literacy venture with the Consumer Financial Protection Bureau. (Do they still exist?). The roundtable will work with the federal watchdog agency “to advance a vision for stronger and more capable consumers,” as CFPB head Richard Cordray put it. Let’s see, the Roundtable and its members spend a lot of time and money making sure it doesn’t happen. For every dollar spent on financial education by the government, schools, and, the financial services industry, the banks, brokerages, and other financial firms spent $25 Million marketing their products.
Take Discover Financial Services, whose chairman and chief executive officer David Nelms spoke proudly of his company’s efforts to educate Americans on money matters. He said, “If consumers are better with their finances they are going to qualify for our products more in the first place”.
Look at Discover’s online financial literacy materials, like setting up a 3-6 month emergency plan (a good idea in itself). However, in a section titled “Credit Cards: The Benefits of Using Plastic,” the company was promoting the use of credit cards as an emergency fund, not to mention as a budget management tool. “Credit cards can also help consumers stretch their monthly income,” the site chirped. They forgot to include: and prolong payback, earn a lot more interest for D, and deepen consumers’ debt.
Remember D, came to an agreement with the CFPB in 2012 to refund $200 million to customers and pay a $14 million fine for using what was described as “deceptive” techniques to sell customers such things as credit score tracking and identify theft protection. Service reps implied the products were free and frequently forgot to mention that customers who were self-employed, unemployed, or suffering from various medical conditions were not eligible to use the products being pitched at them.
There was also a trick in which Discover’s customer service specialists spoke very fast when giving out price information—so fast that the person on the other end of the line couldn’t process it. Another financial education specialist, BB&T Bank whose brokerage’s arm came to a $350,000 settlement with the Financial Industry Regulatory Authority in 2012, was accused of marketing nontraditional exchange-traded funds to customers without properly educating the representatives selling them. The result? Customers who were seeking “capital preservation” ended up being peddled riskier investments than they wanted.
As for the Roundtable, the organization has taken a prominent role fighting the Department of Labor’s and SEC’s attempts to require financial advisers giving advice on individual retirement savings to act in consumers’ best interests. “A fiduciary standard”, the DOL called the now dead proposal. However the Roundtable claimed expanding the fiduciary standard to cover individual retirement accounts would cause “unnecessary confusion.” They forgot to mention that consumers are already confused
