2020’s Start of the Year Frauds
SCHWARTZ CHARGED
The Securities and Exchange Commission today charged a South Florida businessman with aiding and abetting the isappropriation of millions of
dollars of investor funds from 1 Global Capital, LLC, a now-bankrupt Floridabased merchant cash advance company. The Commission previously charged
1 Global and its former founder, chairman, and CEO, Carl Ruderman, with misappropriating the funds as part of a $322 million fraud perpetrated on
3,600 retail investors in 42 states.
According to the SEC’s complaint, Steven A. Schwartz, Ruderman’s brotherin-law, served as 1 Global’s director and, according to 1 Global’s marketing materials, as its chief operating officer. The complaint further alleges that Schwartz became trustee of a Ruderman family trust in June 2014, and that shortly afterwards, Ruderman had Schwartz execute an agreement conveying ownership of 1 Global to the trust. As alleged, until 1 Global declared bankruptcy in July 2018, Schwartz allowed Ruderman to use the trust to misappropriate several million dollars in investor funds to pay for Ruderman’s luxury lifestyle. In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Schwartz.
CHARGED:PONZIish
On December 19, 2019, the Securities and Exchange Commission chargedEdward Espinal and his company, Cash Flow Partners, LLC, in connection
with an alleged $5 million Ponzi scheme that defrauded at least 90 investors,many of whom were members of the Hispanic community. The SEC’s complaint alleges that from at least July 2016, Espinal and Cash Flow Partners deceived investors into believing that they were investing in a pooled fund that would purchase and renovate houses, and then flip the houses for profit. Espinal and Cash Flow Partners allegedly guaranteed investors rates of return between 1.25% and 4% per month. The complaint alleges that, in reality, Cash Flow Partners’ purported real estate “fund” owned only two residential properties, neither of which were ever sold.
Instead, Espinal allegedly used money from new investors to pay monthly “returns” to other investors, to bankroll his personal living expenses, and to
sustain his separate fraudulent bank loan scheme.
KELTNER
On January 6, 2020, the U.S. District Court for the Middle District of Tennessee entered a final consent judgment in a previously-filed SEC enforcement action against Jay Costa Kelter, a former registered investment adviser and registered representative. The SEC’s action, filed November 9, 2017, charged Kelter with defrauding three retired clients out of more than $1.85 million. As alleged, Kelter made material misrepresentations to these clients, including false guarantees concerning investor losses, and misappropriated $1.4 million of client funds for his own use. In a parallel criminal matter, Kelter pled guilty to one count of securities fraud and one count of wire fraud. He was sentenced to 29 months imprisonment and ordered to pay restitution of $1.467 million. To resolve the SEC’s allegations, Kelter consented to the entry of the final judgment, enjoining him from future violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5,
Section 17(a) of the Securities Act of 1933, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. The judgment orders Kelter to pay disgorgement of $1.467 million and prejudgment interest of $331,985, deemed satisfied by the restitution ordered against him in the criminal case. Kelter also consented to an order permanently barring him from the securities industry.
ARO
The Securities and Exchange Commission charged MA-based private investment firm ARO Equity, LLC, and its principals, Thomas D. Renison and Timothy J. Allcott, with fraud. As alleged, the defendants made false statements to current and prospective retail investors about ARO Equity’s performance and used investor funds to pay interest to other investors. According to the SEC’s complaint, in July 2014, Renison, a CT resident, was barred by the SEC from, among other things, associating with any investment adviser or broker dealer. Nevertheless, the complaint alleges that from at least July 2015 through June 2018, Renison violated this bar when
he, along with Allcott, a MA-resident, formed ARO Equity and raised approximately $6 million from at least 15 investors. The SEC’s complaint alleges that Renison and Allcott falsely touted ARO Equity’s success to encourage potential investors to cash out of their retirement products and invest with them in ARO Equity. The complaint alleges that soon after the defendants launched the firm, ARO Equity’s investments began to fail. Rather than inform their investors of the losses, Renison and Allcott continued to falsely promote ARO Equity’s success and the security of investing with them. Among other false statements, Renison and Allcott
allegedly told investors that ARO Equity had double-digit returns, that there was no downside to investing with the firm, and that the investors’ money
was as safe as being in a bank. In reality, ARO Equity had experienced significant losses and had to use new investor funds to pay interest to older investors.
MORE FRAUD:
The Securities and Exchange Commission charged Donald G. Blakstad and two entities he controlled with engaging in the fraudulent offer and sale of over $3.5 million of securities. The SEC’s complaint alleges that, between July 2015 and May 2019, Blakstad induced investors to purchase the securities of companies he
controlled, including both Energy Sources International Corporation and Xact Holdings Corporation, by making materially false and misleading statements
and omissions about the use of investor proceeds and business operations. According to the SEC’s complaint, instead of using investor funds as
promised, Blakstad misappropriated at least $2.2 million of investor funds. Blakstad allegedly spent the investor funds on personal entertainment, the
purchase of a stake in a night club, and a luxury automobile. In July 2019, the Commission charged Blakstad for his role in a separate insider trading
scheme.
In a parallel action, the United States Attorney’s Office for the Southern District of New York announced criminal charges against Blakstad.
IT’S BINARY
On June 5, 2019, the U.S. District Court for the Southern District of Floridaentered final judgments by consent against Timothy J. Atkinson, his former
business partner, Jay Passerino, and their former business, All in Publishing, LLC, to resolve pending claims that they fraudulently solicited retail investors
to open and fund brokerage accounts to trade high-risk securities known as binary options. The SEC’s complaint against Atkinson, Passerino, and All in
Publishing alleged that while acting as “affiliate marketers,” they created and disseminated professional-looking videos that fraudulently depicted
“investors” enjoying rich lifestyles from trading binary options, and “live” demonstrations of investors opening and funding binary option trading accounts and watching their trading balances increase automatically. In reality, the defendants’ videos were pure fiction.
On August 15, 2019, the District Court for the Middle District of Florida entered a final judgment by consent against Michael Wright to resolve pending claims that he aided and abetted the fraud. The SEC’s complaint charged Wright with creating fraudulent internet marketing materials, including deceptive emails, scripts, slides, and/or videos, that were then disseminated to prospective investors by defendant Ronald C. Montano. The final judgment entered against Atkinson and All in Publishing, to which they consented without admitting or denying the allegations in the complaint, orders them to pay disgorgement of $27,208,987 in ill-gotten gains and $2,824,935 in pre-judgment interest, and orders Atkinson to pay a civil penalty of $27,208,987. The final judgment entered against Passerino,
to which he also consented without admitting or denying the allegations in the complaint, orders him to pay disgorgement of $1,894,991 in ill-gotten
gains, $220,431 in prejudgment interest, and a civil penalty of $1,894,991.
INSIDER TRADING
1.The Honorable David O. Carter of the United States District Court for theCentral District of California entered a final judgment approving theCommission’s settlement of its insider trading claims against David L. Parker. The SEC’s complaint, which was filed in 2012, alleged that Parker traded on material, nonpublic information concerning Advanced Medical Optics, Inc.’s upcoming tender offer by Abbott Laboratories, Inc. The complaint alleged that former Advanced Medical Optics’ Chief Executive Officer James V. Mazzo tipped his good friend, former baseball player Douglas V. DeCinces, who in turn tipped Parker and four other friends, each of whom traded on the information. Mazzo, DeCinces, and the four other alleged tippees previously settled with the Commission, and Parker’s settlement resolves the litigation in full.
Without admitting or denying the allegations, Parker consented to a final judgment, which was entered on December 11, 2019, that permanently enjoins him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, orders Parker to pay $343,954 in disgorgement, and imposes a $56,046 civil penalty.
2.According to the SEC’s complaint, filed on June 26, 2018, Sebastian PintoThomaz, an analyst in the credit ratings agency’s New York office, learned of The Sherwin-Williams Co.’s confidential plans to acquire The Valspar Corp. The SEC alleges that Pinto-Thomaz tipped his friends, Abell Oujaddou, a co-owner and co-manager of an upscale New York hair salon, and Jeremy Millul, a New York jeweler, who then purchased Valspar securities before the merger was announced. Valspar’s shares rose 23 percent on the news, and Oujaddou and Millul sold their holdings shortly afterwards for profits of approximately $192,000 and $107,000, respectively. Pinto-Thomaz, Oujaddou, and Millul each agreed to settle with the SEC and consented to the entry of judgments permanently enjoining them from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, ordering Millul and Oujaddou liable for disgorgement of their ill-gotten trading profits, and ordering PintoThomaz liable for disgorgement of a cash payment he received from Oujaddou, with the disgorgement for all three defendants deemed satisfied by orders of forfeiture entered in a parallel criminal action. Pinto-Thomaz, who was convicted after a trial, is serving a 14-month prison sentence.
Oujaddou and Millul each pled guilty, and Millul is serving a 5-month prison sentence. In a separate administrative proceeding instituted on November 12, 2019, Pinto-Thomaz also consented to a bar from association with any nationally recognized statistical rating organization.
PUMP AND DUMP…again.
The Securities and Exchange Commission today charged six individuals and their companies with participating in schemes that allegedly generated more than
$35 million of illegal sales of stock in at least 45 microcap companies. The charges contained in two complaints reflect investigations by staff in the SEC’s
New York and Boston offices, and assistance from multiple regulators outside the U.S. According to one SEC complaint, Steve M. Bajic, a citizen of Canada and
Croatia, and Rajesh Taneja, a Canadian citizen, helped shareholders secretly dump large quantities of microcap stock, coordinating the illegal stock sales with
Kenneth Ciapala, a citizen of the U.K. and Switzerland, and Anthony Killarney, a U.K. citizen, and Swiss-based company Blacklight SA. The SEC’s complaint also
alleges that Christopher McKnight, a Canadian citizen, and Aaron Wise, a U.S. citizen, fraudulently transferred, and hid the sources of, funds used to promote
several of the microcap stocks.
A second complaint alleges that Ciapala and Blacklight facilitated the sale of millions of unregistered shares of EMS Find Inc. (EMSF) while the microcap
stock’s price was being artificially inflated and dumped into the market. The complaint further alleges that Ciapala and Blacklight engaged in manipulative
trading of EMSF stock. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Ciapala
and Blacklight.
ONLINE DATING??
Stamford, Connecticut resident Thomas J. Connerton was sentenced on December 20, 2019 to nine years imprisonment in a criminal action brought
by the United States Attorney for the District of Connecticut for conduct related to charges brought by the Securities and Exchange Commission. Connerton was also sentenced to four years of supervised release. A jury convicted Connerton in the criminal action on September 17, 2018, of twelve counts of wire fraud, one count of mail fraud, sixteen counts of securities fraud, four counts of money laundering, and one count of tax evasion. Restitution will be determined after additional court proceedings. In the parallel civil action, filed in June 2016, the SEC charged Connerton and his company, Safety Technologies LLC, with making false and misleading statements to investors about potential business deals and misappropriating investor fund for his personal use. The victims of Connerton’s alleged scheme included several women Connerton met through an online dating website. When the SEC filed its case it stopped the ongoing fraud and froze Connerton’s assets. In early 2017, Connerton and Safety Technologies agreed to settle the SEC’s charges and pay more than $1.89 million in disgorgement, interest, and civil penalties. They also consented to a lifetime ban on participating in the issuance, purchase, offer, or sale of any security.
POT FRAUD
A Colorado stock promoter and two of his companies agreed to pay $4.2 million to settle the U.S. Securities and Exchange Commission’s charges for fraudulently
promoting and trading a cannabis stock. On Dec. 5, 2019, the U.S. District Court for the District of Colorado entered the final judgment. The SEC’s complaint alleged that Jeffrey O. Friedland touted – or promoted – the stock of cannabis company OWC Pharmaceutical Research Corp., while misrepresenting his own investment in OWC and his professional relationship with the company. According to the complaint, Friedland promoted OWC to investors without disclosing his role as a paid promoter or the amount of his compensation. As alleged in the complaint, Friedland held millions of shares of OWC stock through two companies that he controlled, Intiva Pharma LLC and Global Corporate Strategies LLC, with the bulk of the shares received as compensation for promoting OWC to investors, including retail investors. Additionally, according to the complaint, Friedland secretly sold his OWC shares into the market at the same time that he was touting OWC stock to
the public as a long-term investment.
“Retail investors are entitled to the facts about promoters’ relationships with the companies they tout under our securities laws,” said Associate Director Melissa
Hodgman. “The $2 million penalty assessed against Friedland reflects the SEC’s strong commitment to protecting investors’ right to fair and accurate disclosure.”
Without admitting or denying the allegations in the complaint, Friedland and Global agreed to disgorge nearly $2.1 million plus prejudgment interest, and
Intiva agreed to disgorge $20,000. Friedland also agreed to pay a $2 million penalty. All defendants consented to bars prohibiting them from participating in
penny stock offerings.