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Archive for the ‘SEC’ Category


SEC Charges Woodbridge Group of Companies LLC operators with running $1.2 billion Ponzi

The Securities and Exchange Commission today announced charges and an asset freeze against a group of unregistered funds and their owner who allegedly bilked thousands of retail investors, many of them seniors, in a $1.2 billion Ponzi scheme.

SEC investigators filed this action to prevent further dissipation of investor assets after obtaining court orders in September and November in subpoena enforcement actions that forced the unregistered companies to open their books.

According to the SEC’s complaint, unsealed today in federal court in Miami, Florida, Robert H. Shapiro and a group of unregistered investment companies called the Woodbridge Group of Companies LLC formerly headquartered in Boca Raton, Florida, defrauded more than 8,400 investors in unregistered Woodbridge funds.

“We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“Our complaint alleges that Woodbridge’s business model was a sham,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

“Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Shapiro used the scheme to line his pockets with millions of investor dollars.”

According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15% annual interest for “hard money,” short-term financing.  In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually.  Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients keep coming back to [Woodbridge] because time and experience have proven results.  Over 90% national renewal rate!”  While Woodbridge claimed it made high-interest loans to third parties, the SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.

The SEC complaint alleges that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.”  Shapiro, of Sherman Oaks, California, is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry.  According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.

The Honorable Judge Marcia G. Cooke granted the SEC’s request for a temporary asset freeze against Shapiro and a group of his unregistered investment companies, and ordered them to provide an accounting of all money received from investors.

The SEC’s complaint charges Shapiro, Woodbridge, and certain affiliated companies with fraud and violations of the securities and broker-dealer registration provisions of the federal securities laws.  The SEC is seeking return of allegedly ill-gotten gains with interest and financial penalties. A court hearing has been scheduled for Dec. 29, 2017 on the SEC’s request to continue the asset freeze.  The SEC’s motion for the appointment of a receiver over Woodbridge and the related companies is pending.

The SEC’s investigation, which is continuing, has been conducted by Scott A. Lowry, Linda S. Schmidt, Russell Koonin, Christine Nestor, and Mark Dee in the Miami Regional Office with assistance from Alistaire Bambach, David Baddley and Neal Jacobson.  The case has been supervised by Jason R. Berkowitz and Fernando Torres, and the litigation will be led by Mr. Koonin, Ms. Nestor, and Mr. Lowry.  The SEC appreciates the assistance of the Florida Office of Financial Regulation, California’s Department of Justice and Department of Business Oversight, the Colorado Division of Securities, and the Texas State Securities Board.

SEC announces temporary suspension of trading in Crypto Currency Company – CRCW

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 of The Crypto Company (“CRCW”), of Malibu, California at 9:30 a.m. EST on December 19, 2017, and terminating at 11:59 p.m. EST on January 3, 2018.

The Commission temporarily suspended trading in the securities of The Crypto Company because of concerns regarding the accuracy and adequacy of information in the marketplace about, among other things, the compensation paid for promotion of the company, and statements in Commission filings about the plans of the company’s insiders to sell their shares of The Crypto Company’s common stock. Questions have also arisen concerning potentially manipulative transactions in the company’s stock in November 2017. This order was entered pursuant to Section 12(k) of the Exchange Act.

SEC Charges NY based investment adviser

he Securities and Exchange Commission today charged a Westchester, New York-based investment adviser with fraud stemming from lies to retail investors about the value of their investments in a Ponzi-like scheme.

The SEC alleges that, starting in approximately 2010, Michael Scronic began to raise money from at least 42 friends and acquaintances, many of whom were from his suburban community, in order to invest in a risky options trading strategy. He allegedly lured investors by informing them that he had a long and impressive track record of proven returns. He also allegedly lied to investors about the liquidity of investments, telling one investor that “what’s cool about my fund is that i’m [sic] only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless.” However, the SEC alleges that Scronic was actually hemorrhaging investor money through massive trading losses, with at least $15 million in investment losses since April 2010. For the period ending June 30, 2017, Scronic allegedly reported to investors total assets of at least $21,837,475 while the balance in his brokerage account on June 30, 2017 was just under $27,500.

According to the SEC’s complaint, when certain investors attempted to redeem their investments, Scronic did not disclose his inability to repay them. Rather, he allegedly provided investors with a steady stream of implausible excuses for why he could not pay them back. In other instances, Scronic sought to obtain additional investment funds from new and existing investors in order to satisfy redemption requests from other investors.

“Scronic’s alleged scheme is just another example of a so-called investment professional acting as fiduciary, but failing to deal honestly with his investors for his own financial benefit,” said Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office. “Investors should be wary anytime they are promised high or consistently positive returns in a complex, hard to understand investment strategy.”

The SEC also alleges that Scronic began identifying himself as an investment adviser to a fictitious hedge fund in which he purported to sell interests, or “shares.” The SEC encourages investors to check the backgrounds of people selling investments by using the SEC’s Investor.gov website to quickly identify whether they are registered professionals and confirm their identity.

SEC investigates Woodbridge Group

Court Orders Woodbridge Group of Companies LLC to Produce Documents to SEC

The Securities and Exchange Commission has obtained an order requiring the Woodbridge Group of Companies LLC, of Sherman Oaks, California, to produce the corporate documents of several company executives and employees, including Woodbridge’s President and CEO.

According to the SEC’s application and supporting papers filed in federal court in Miami on July 17, 2017, the agency is investigating whether Woodbridge and others have violated or are violating the antifraud, broker-dealer, and securities registration provisions of the federal securities laws in connection with Woodbridge’s receipt of more than $1 billion of investor funds from thousands of investors nationwide. As part of the SEC’s ongoing investigation, on January 31, 2017, agency staff in the Miami Regional Office served Woodbridge with a subpoena seeking, among other documents, the production of electronic communications that the company maintained relating to Woodbridge’s business operations. The SEC’s application alleges that although Woodbridge was required to produce these documents to the SEC, Woodbridge has failed to produce any relevant communications in response to the subpoena, including those of three high-level Woodbridge officials.

The court’s order requires Woodbridge to produce the documents subject to the SEC’s application beginning October 2, 2017.

The SEC is continuing its fact-finding investigation and to date has not concluded that any individual or entity has violated the federal securities laws.

Barclays to Pay $97 Million for Overcharging Clients

The Securities and Exchange Commission today announced an enforcement action requiring Barclays Capital to refund advisory fees or mutual fund sales charges to clients who were overcharged.

In a settlement of more than $97 million, Barclays agreed to settle three sets of violations that resulted in clients being overbilled by nearly $50 million.  The SEC’s order finds that two Barclays advisory programs charged fees to more than 2,000 clients for due diligence and monitoring of certain third-party investment managers and investment strategies when in fact these services weren’t being performed as represented.  Barclays also collected excess mutual fund sales charges or fees from 63 brokerage clients by recommending more expensive share classes when less expensive share classes were available.  Another 22,138 accounts paid excess fees to Barclays due to miscalculations and billing errors by the firm.

“Barclays failed to ensure that clients were receiving the services they were paying for,” said C. Dabney O’Riordan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Each set of clients who were harmed are being refunded through the settlement.”

The SEC’s order finds that Barclays violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7 as well as Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

Without admitting or denying the SEC’s findings, Barclays agreed to create a Fair Fund to refund advisory fees to harmed clients.  The Fair Fund will consist of $49,785,417 in disgorgement plus $13,752,242 in interest and a $30 million penalty.  Barclays will directly refund an additional $3.5 million to advisory clients who invested in third-party investment managers and investment strategies that underperformed while going unmonitored.  Those funds also will go to brokerage clients who were steered into more expensive mutual fund share classes.

SEC charges investment adviser with cherry-picking and allocating profitable trades for his own account

The Securities and Exchange Commission today announced fraud charges against an investment adviser accused of “cherry-picking” profitable trades for his own account rather than a client’s accounts, and misleading seniors and other clients about the fees he charged and the risks in investments he recommended.  The SEC Enforcement Division alleges that Laurence I. Balter and his Kihei, Hawaii-based firm Oracle Investment Research purchased equities and options in an omnibus account and waited to allocate the trades until after they were executed and Balter knew whether they were profitable.  Balter allegedly allocated profitable trades to his own accounts and unprofitable trades to his client accounts.  The SEC Enforcement Division further alleges that Balter falsely told clients invested in his affiliated mutual fund they would not pay both advisory fees and fund management fees, yet he charged both fees anyway.  Balter also allegedly made trades for the mutual fund that deviated from two of its fundamental investment limitations and ultimately resulted in a non-diversified portfolio that caused significant losses to investors.   “We allege that Balter reaped more than a half-million dollars in ill-gotten gains by siphoning winning trades from his clients and withdrawing more than his fair share of management fees,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Investment advisers breach their fiduciary duty when they favor their own interests and force clients to take less profitable trades without their knowledge.”

SEC Obtains Asset Freeze in Case of Investor Funds Stolen for Shopping Sprees

The Securities and Exchange Commission today announced an asset freeze it has obtained against three men who aren’t registered to sell investments and allegedly went on lavish shopping sprees with more than $5 million raised from investors to purportedly develop a resort.

In an emergency action filed in federal court in Atlanta, the SEC alleges that Matthew E. White, Rodney A. Zehner, and Daniel J. Merandi fraudulently issued $1 billion in unsecured corporate bonds out of a shell company they own and claimed the money would be used to fund the resort project.  But they never came close to raising the funds necessary to start the project, and meantime they pocketed the $5.6 million they did raise and used it for personal purchases at Saks Fifth Avenue, Gucci, Louis Vuitton, Prada, and Versace.

“We allege that these men stole millions of dollars from investors for personal use and orchestrated sham transactions to prop up the price of the worthless, expired bonds at the center of the fraud,” said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office.

The SEC’s complaint filed yesterday alleges that White, Zehner, Merandi, and their companies violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5. The SEC seeks permanent injunctions, disgorgement, and penalties against all of the defendants.  The court order obtained late yesterday freezes defendants’ cash held in a brokerage account and freezes the bonds held in a separate brokerage account.

Citigroup Affiliates to Pay $180 Million to Settle Hedge Fund Fraud Charges — The ASTA/Mat Aftermath

The Securities and Exchange Commission today announced that two Citigroup affiliates have agreed to pay nearly $180 million to settle charges that they defrauded investors in two hedge funds by claiming they were safe, low-risk, and suitable for traditional bond investors. The funds later crumbled and eventually collapsed during the financial crisis.

Citigroup Global Markets Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI) agreed to bear all costs of distributing the $180 million in settlement funds to harmed investors.

An SEC investigation found that the Citigroup affiliates made false and misleading representations to investors in the ASTA/MAT fund and the Falcon fund, which collectively raised nearly $3 billion in capital from approximately 4,000 investors before collapsing. In talking with investors, they did not disclose the very real risks of the funds. Even as the funds began to collapse and CAI accepted nearly $110 million in additional investments, the Citigroup affiliates did not disclose the dire condition of the funds and continued to assure investors that they were low-risk, well-capitalized investments with adequate liquidity. Many of the misleading representations made by Citigroup employees were at odds with disclosures made in marketing documents and written materials provided to investors.

“Firms cannot insulate themselves from liability for their employees’ misrepresentations by invoking the fine print contained in written disclosures,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “Advisers at these Citigroup affiliates were supposed to be looking out for investors’ best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster.”

According to the SEC’s order instituting a settled administrative proceeding:

*  The ASTA/MAT fund was a municipal arbitrage fund that purchased municipal bonds and used a Treasury or LIBOR swap to hedge interest rate risks.

*  The Falcon fund was a multi-strategy fund that invested in ASTA/MAT and other fixed income strategies, such as CDOs, CLOs, and asset-backed securities.

*  The funds, both highly leveraged, were sold exclusively to advisory clients of Citigroup Private Bank or Smith Barney by financial advisers associated with CGMI. Both funds were managed by CAI.

*  Investors in these funds effectively paid advisory fees for two tiers of investment advice: first from the financial advisers of CGMI and secondly from the fund manager, CAI.

*  Neither Falcon nor ASTA/MAT was a low-risk investment akin to a bond alternative as investors were repeatedly told.

*  CGMI and CAI failed to control the misrepresentations made to investors as their employees misleadingly minimized the significant risk of loss resulting from the funds’ investment strategy and use of leverage among other things.

*  CAI failed to adopt and implement policies and procedures that prevented the financial advisers and fund manager from making contradictory and false representations.

CGMI and CAI consented to the SEC order without admitting or denying the findings that both firms willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933, GCMI willfully violated Section 206(2) of the Investment Advisers Act of 1940, and CAI willfully violated Section 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8. Both firms agreed to be censured and must cease and desist from committing future violations of these provisions.

The SEC’s investigation has been conducted by Olivia Zach, Kerri Palen, David Stoelting, and Celeste Chase of the New York Regional Office, and supervised by Sanjay Wadhwa.

SEC Charges Houston-Area Businessman in Ponzi Scheme

The Securities and Exchange Commission today charged a Houston-area businessman with operating a $114 million Ponzi scheme that defrauded investors, some of whom were told that their money would fund technology to prevent accidents caused by drowsy driving.

The SEC’s case filed in federal court in Houston charged Frederick Alan Voight of Richmond, Texas with defrauding more than 300 investors in multiple offerings of promissory notes issued by two partnerships he owns, F.A. Voight & Associates LP and DayStar Funding LP.  While Voight’s latest offering promised investors returns as high as 42 percent a year from loans to small public companies, most of the funds went to pay earlier investors, the complaint alleges.  Approximately $22 million of Voight’s allegedly ill-gotten gains remain unaccounted for to date.

“Voight wooed investors with promises of outsized returns and once-in-a-lifetime investment opportunities.  But, like all Ponzi schemes, we allege that this one collapsed when Voight couldn’t find enough new money to keep up with his false promises,” said David L. Peavler, Acting Regional Co-Director of the SEC’s Fort Worth Regional Office.

According to the SEC’s complaint, Voight recently raised $13.8 million that he said would be loaned to a startup named InterCore Inc. to fund its deployment of a “Driver Alertness Detection System,” or DADS.  Starting in October 2014, Voight allegedly wrote to prospective investors about a “tremendous” opportunity to help InterCore install the DADS technology into “several million trucks and buses,” which he said was enough for the company to pay the 30 to 42 percent annual interest rates on the promissory notes “many, many times over.”

Voight knew the claims were false because he served on InterCore’s board and was aware that the Delray Beach, Florida public company was financially troubled and had no means to pay back the loans, the complaint alleges.  The SEC alleges that Voight used funds from the DADS investors to make Ponzi payments to earlier investors or funneled them to InterCore through two of his other partnerships, Rhine Partners LP and Topside Partners LP.  The complaint alleges that InterCore sent the funds to its Montreal-based subsidiary, InterCore Research Canada, Inc., where the funds seemingly disappeared.  By routing funds through Rhine and Topside, Voight is alleged to have garnered benefits – including fees and InterCore stock warrants – that he never disclosed to the DADS investors.

The SEC’s complaint charges Voight and DayStar with securities fraud and with conducting unregistered securities offerings.  Voight and Daystar, without admitting or denying the allegations, agreed to settle the SEC’s complaint by consenting to permanent injunctions against committing these violations in the future.  They also agreed to asset freezes and other emergency relief, and to pay civil penalties and return allegedly ill-gotten gains with interest in amounts to be set later by the court.  Voight also consented to being barred from serving as a public company officer or director and to be barred permanently from participating in the offer, purchase, or sale of any security except for his own personal account.

The SEC named F.A. Voight & Associates, Rhine, Topside, InterCore, and InterCore Research Canada as relief defendants for the purpose of recovering any allegedly ill-gotten gains they received from the fraud.  F.A. Voight & Associates, Rhine, and Topside have agreed to asset freezes and other emergency relief and to return allegedly ill-gotten gains in amounts to be set by the court.  The SEC will litigate its claims against relief defendants InterCore and InterCore Research.

SEC Charges Investment Adviser With Defrauding Retired Teachers

The Securities and Exchange Commission today charged an investment adviser in Miami with siphoning money from his investment fund and defrauding investors, including several local teachers and law enforcement officers.

The SEC alleges that Phil Donnahue Williamson conducted a Ponzi scheme with money he raised for the Sterling Investment Fund, which purportedly invested in mortgages and properties in Florida and Georgia.  Many of Williamson’s investors were public sector retirees such as teachers and law enforcement officers who sought safe investments for their retirement savings.  Williamson assured investors there was no risk involved and they would receive annual returns of 8 to 12 percent.  But rather than invest their money as promised, he used the majority of fund assets to pay his personal expenses and make supposed returns to investors.  Williamson created fictitious valuations that were sent to investors.

“We allege that Williamson lured retired teachers, law enforcement officers, and others into believing that the Sterling Investment Fund was a safe investment generating significant returns,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Investors entrusted him with their retirement savings, and he spent it as his own money.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, one retired Miami-Dade County school teacher and church pastor invested $125,000 in the fund.  That same day, Williamson transferred himself $10,000 to pay his credit card bill and make a car payment to BMW among other personal expenditures.  Williamson later paid $24,400 to other investors in the fund as purported distributions, and transferred himself another $24,000 to pay additional personal expenses.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Williamson.

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