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Archive for the ‘SEC’ Category


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.

SEC Halts Fraudulent Farm Loan Scheme by Indianapolis Investment Adviser

The Securities and Exchange Commission today announced charges against an Indianapolis investment adviser, its president, two associates and several affiliated companies for engaging in two fraudulent farm loan offerings, in which they made ponzi scheme payments to investors in other offerings and paid themselves hundreds of thousands of dollars in undisclosed fees. The SEC obtained a temporary restraining order and emergency asset freeze to halt the scheme.

According to the SEC’s complaint, filed in the U.S. District Court for the Southern District of Indiana, in 2013 and 2014, Veros Partners, Inc., its president, Matthew D. Haab, and two associates, attorney Jeffrey B. Risinger and Tobin J. Senefeld, fraudulently raised at least $15 million from at least 80 investors, most of whom were Veros advisory clients. The investors were informed that their funds would be used to make short-term operating loans to farmers, but instead, significant portions of the loans were to cover the farmers’ unpaid debt on loans from prior offerings. According to the SEC’s complaint, Haab, Risinger and Senefeld used money from the two offerings to pay millions of dollars to investors in prior farm loan offerings and to pay themselves over $800,000 in undisclosed “success” and “interest rate spread” fees.

In addition to Veros, Haab, Risinger, and Senefeld, the SEC charged Veros Farm Loan Holding LLC and FarmGrowCap LLC, the issuers of the offerings, and PinCap LLC. The SEC also charged registered broker-dealer Pin Financial LLC as a relief defendant.

The Honorable Jane Magnus-Stinson of the U.S. District Court for the Southern District of Indiana issued an asset freeze order against the defendants as well as a temporary restraining order prohibiting them from soliciting, accepting or depositing any monies from any actual or prospective investors, and in the case of Veros, any investors in private securities offerings. Judge Magnus-Stinson also ordered that a receiver be appointed. A preliminary injunction hearing has been scheduled for May 1, 2015.

The SEC’s complaint charges the defendants with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and also charges Veros and Haab with violating Sections 206(1), 206(2) of the Investment Advisers Act, and Veros with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2. The SEC’s complaint seeks permanent injunctions and disgorgement against all defendants and a financial penalty. The SEC’s complaint names Pin Financial for the purposes of recovering proceeds it received from the fraud.

SEC charges New York financial advisor with stealing $20 million from customers

The Securities and Exchange Commission today announced fraud charges against a New York City-based financial advisor accused of stealing at least $20 million from customers to fund his own brokerage accounts and then squandering the bulk of the money in highly unprofitable options trading.

The SEC alleges that Michael J. Oppenheim abused his position as a private client advisor at a global bank and persuaded some customers to withdraw millions of dollars out of their accounts by promising he would purchase safe and secure municipal bonds on their behalf. Instead, Oppenheim bought himself cashier’s checks and deposited them into his own brokerage account or his wife’s account that he controlled. Almost immediately after each theft and deposit, Oppenheim allegedly embarked on sizeable trading of stocks and options including Tesla, Apple, Google, and Netflix. Oppenheim typically lost the entire amount of each deposit, and his brokerage accounts currently show minimal cash balances. On occasions when his accounts did have positive cash balances, he allegedly wired money to bank accounts in his or his wife’s name. At least one outgoing wire was used to pay off a portion of his mortgage.

“We allege that Oppenheim promised his customers that he would invest their money in safe and secure investments, but he seized their funds and aggressively played the stock market in his own accounts,” said Amelia A. Cottrell, Associate Director of the SEC’s New York Regional Office.

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

According to the SEC’s complaint filed in federal court in Manhattan, Oppenheim took illicit steps to conceal his fraud. For instance, Oppenheim created false account statements when a customer asked for a statement reflecting his municipal bond holdings. Oppenheim simply pasted the customer’s name onto an account statement reflecting the holdings of another customer, and provided the fabricated statement to convince the customer that he had purchased the municipal bonds for his account as promised. In another instance, Oppenheim transferred money from one customer to another to replenish the amounts he had stolen earlier.

The SEC’s complaint charges Oppenheim, who lives in Livingston, N.J., with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC’s complaint seeks disgorgement of ill-gotten gains plus prejudgment interest and financial penalties as well as permanent injunctions barring future violations. The SEC’s complaint against Oppenheim names his wife Alexandra Oppenheim as a relief defendant for the purpose of recovering any customer funds transferred to her.

SEC Obtains Asset Freeze Against Massachusetts-Based Investment Advisers Charged with Misappropriation of Money from an Investment Fund

The Securities and Exchange Commission yesterday announced that a federal court has imposed an asset freeze against a group of Massachusetts-based investment advisory companies and their President/CEO, based on the alleged misappropriation of at least $16 million from an investment fund.

Judge Nathaniel Gorton of the United States District Court for the District of Massachusetts granted the SEC’s request for an emergency court order to freeze the assets of the following defendants, who are charged in a complaint filed by the SEC on January 9, 2015:

  • Daniel Thibeault of Framingham, Massachusetts;
  • Graduate Leverage, LLC, an asset management and financial advisory firm based in Waltham, Massachusetts, of which Thibeault is the principal owner, president and Chief Executive Officer;
  • GL Capital Partners, LLC, an investment adviser based in Waltham, Massachusetts that is controlled by Thibeault;
  • GL Investment Services, LLC, an investment adviser based in Waltham, Massachusetts that is indirectly owned by Thibeault;
  • Taft Financial Services, LLC, which is based in Texas and is believed to be controlled by Thibeault; and
  • two other parties as relief defendants based on their receipt of investor funds: GL Advisor Solutions, Inc., a corporation based in the Philippines that is controlled by Graduate Leverage, LLC and Thibeault; and Shawnet Thibeault, who is Daniel Thibeault’s wife.

In addition to the asset freeze, the court also ordered certain preliminary relief against the defendants, including, variously, preliminary injunctions, an accounting of investor funds and all assets in their possession, a repatriation of all foreign assets that were obtained directly or indirectly from investors, and a prohibition from soliciting or accepting additional investments.

The SEC’s complaint alleges that GL Capital Partners, LLC and its principal, Daniel Thibeault, were the investment advisers to a fund called the GL Beyond Income Fund, and that they misappropriated at least $16 million of the money that belonged to this fund. The GL Beyond Income Fund’s assets consisted primarily of individual variable rate consumer loans. According to the complaint, Thibeault and other defendants solicited investments in the GL Beyond Income Fund by representing that investors’ money would be pooled and used to make or purchase consumer loans. These consumer loans would then constitute assets of the GL Beyond Income Fund, and would provide a return to the investors when interest and principal payments were made on the loans. The SEC alleges that beginning in 2013 or earlier, Thibeault and the other defendants engaged in a scheme to create fictitious loans to divert investor money from the GL Beyond Income Fund, and to report these fake loans as assets of the GL Beyond Income Fund. This scheme was designed to conceal the fact that Thibeault and the other defendants had misappropriated millions of dollars from the GL Beyond Income Fund. According to the SEC’s complaint, the scheme involved the fabrication of paperwork purporting to reflect numerous six-figure consumer loans using the names and personal information of individuals who were unaware that loans were being originated in their names. The complaint further alleges that money from the GL Beyond Income Fund was disbursed to fund these fictitious loans, but the borrowed money did not go to the purported borrowers whose names appeared on the documentation. Instead, it went to Thibeault and other defendants. The SEC alleges that Thibeault and other defendants misappropriated the money from the fake loans and used it for personal expenses and to run businesses other than the GL Beyond Income Fund, as well as to perpetuate the scheme by making “interest payments” on fake loans.

The SEC charges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 and that Thibeault, GL Capital Partners, LLC, and GL Investment Services, LLC, also violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against each of these defendants. The SEC also seeks disgorgement plus prejudgment interest from relief defendants GL Advisor Solutions, Inc. and Shawnet Thibeault.

City of Harvey Agrees to Settle Charges Stemming from Fraudulent Bond Offering Scheme

The Securities and Exchange Commission announced today that on December 4, 2014, the City of Harvey, Illinois agreed to settle charges stemming from an enforcement action filed in June 2014. The city has consented to the entry of a final judgment which includes undertakings designed to provide significant protections for bond investors.

On June 25, 2014, the SEC obtained an emergency court order in the U.S. District Court for the Northern District of Illinois against the Chicago suburb and its comptroller, Joseph T. Letke, to stop a fraudulent bond offering that the city had been marketing to potential investors. The complaint alleged that the city and Letke had been engaged in a scheme for the past several years to divert bond proceeds from prior bond offerings for improper, undisclosed uses. While investigating Harvey’s past bond offerings, the SEC learned that the city intended to issue new limited obligation bonds. The SEC also learned that the city had drafted offering documents that made materially misleading statements about the purpose and risks of those bonds, while omitting that past bond proceeds had been misused.

The city has agreed to the entry of a final judgment which will enjoin it from committing future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Harvey has agreed to retain an independent consultant and an independent audit firm, and will be prohibited from engaging in the offer or sale of any municipal securities for three years unless it retains independent disclosure counsel. These measures are designed to prevent future securities fraud by Harvey and to enhance transparency into Harvey’s financial condition for future bond investors. The litigation against Letke is pending.

For additional information, see Release No. 2014-122 (June 25, 2014).

SEC charges Sands Brothers Asset Management LLC, Steven Sands and Martin Sands

The Securities and Exchange Commission today announced charges against an investment advisory firm and three top officials for violating the “custody rule” that requires firms to follow certain procedures when they control or have access to client money or securities.

Advisory firms with custody of private fund assets can comply with the custody rule by distributing audited financial statements to fund investors within 120 days of the end of the fiscal year.  This provides investors with regular independent verification of their assets as a safeguard against misuse or theft.  The SEC’s Enforcement Division alleges that Sands Brothers Asset Management LLC has been repeatedly late in providing investors with audited financial statements of its private funds, and the firm’s co-founders Steven Sands and Martin Sands along with chief compliance officer and chief operating officer Christopher Kelly were responsible for the firm’s failures to comply with the custody rule.  Sands Brothers has offices in Greenwich, Conn., New York City, and Tiburon, Calif.

“The custody rule is not a technicality.  It is a critical investor protection provision designed to help ensure that investor assets are safe,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Sands Brothers and its senior-most officers have persistently disregarded their obligations under the law and left their clients waiting for months at a time to have the materials they need to verify the existence and value of fund assets.”

According to the SEC’s order instituting an administrative proceeding, Sands Brothers was at least 40 days late in distributing audited financial statements to investors in 10 private funds for fiscal year 2010.  The next year, audited financial statements for those same funds were delivered anywhere from six months to eight months late.  The same materials for fiscal year 2012 were distributed to investors approximately three months late.  According to the SEC’s order, Sands Brothers and the two co-founders were previously sanctioned by the SEC in 2010 for custody rule violations.

SEC Announces Cases Targeting International Pyramid Scheme Operators

The Securities and Exchange Commission today announced charges against the operators of an international pyramid scheme that raised more than $129 million from investors worldwide, primarily in the U.S., China, and Taiwan.  The case follows another against a separate pyramid scheme that lured investors in the U.S., China, and Korea with seminars, webinars, and YouTube videos.

The newest case, filed in federal court in San Francisco, charges Hong Kong-based eAdGear Holdings Limited and California-based eAdGear, Inc., along with operators Charles S. Wang and Qian Cathy Zhang, of Warren, N.J., and Francis Y. Yuen, of Dublin, Calif.  According to the SEC complaint, even though eAdGear claimed to be a successful Internet marketing company, nearly all of its revenue was generated by investors, not its products or services. 

The complaint alleges that eAdGear’s operators used money from new investors to pay earlier investors as well as to repay a personal loan and purchase million-dollar homes for themselves. It alleges the operators concealed and perpetuated the scheme by displaying sham websites on eAdGear’s own site to make it appear as if it had real, paying customers and manipulated revenue distributions to investors to appear profitable.

“eAdGear and its operators falsely claimed that they were running a profitable Internet marketing company when in reality, they were operating a Ponzi and pyramid scheme that preyed on Chinese communities and caused investors to lose millions of dollars,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office.

The eAdGear case follows one filed Monday in federal court in Georgia against Zhunrize Inc. and CEO Jeff Pan for allegedly defrauding investors of more than $105 million since 2012.  Despite its claims to be a legitimate multi-level marketing company, Zhunrize derived most of its funds from selling memberships, not products, according to the SEC complaint. 

“Zhunrize claimed to offer investors the opportunity to be an ‘e-commerce Business Owner’ selling products to customers through a website.  In fact, it was a pyramid and ‘profits’ came from fees paid by later investors,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office.

In both cases, the courts granted the SEC’s request for an asset freeze and issued a temporary restraining order.  In the case of eAdGear, that order bars the defendants from soliciting investors, including through websites they have used until now –www.eadgear.comwww.eadgear.netwww.winteam777.com, and www.winteam168.com.  A court hearing has been scheduled for October 10.

SEC Charges Former Cleveland-Area Investment Promoter with $18 Million Scheme

The Securities and Exchange Commission (“Commission”) filed a civil injunctive action on August 26, 2014 against Oscar F. Villarreal, formerly of Gates Mills, Ohio. The Commission’s complaint alleges that Villarreal defrauded 51 investors out of more than $18 million in three securities offerings since 2009.

The complaint, filed in the U.S. District Court for the Northern District of Ohio, alleges that from March 2009 through December 2010, Villarreal conducted a fraudulent offering, known as Fund III, which raised $9.2 million from 46 investors. According to the complaint, Villarreal told investors that their money was to be used to make private equity investments in companies in the petroleum, steel, and other industries in Mexico. Villarreal lied to these investors about the success of a previous fund he operated, lied in saying that he used their money to purchase and profitably operate a Mexican pipeline manufacturer, and lied by telling investors that Fund III had ownership interests in several U.S. and Mexican drilling companies. Villarreal instead used $7.4 million of Fund III assets to trade in publicly traded securities in a brokerage account-contrary to his representations to investors-and sustained heavy losses, and also stole $5.8 million for himself. By November 2011, Fund III was essentially insolvent.

The Commission’s complaint also alleges that, between August 2010 and March 2011, Villarreal conducted a second fraudulent offering, known as the Standard Asset Management Fund I, (“SAM Fund”), which raised $9 million from 11 investors, six of whom had previously invested in Fund III. According to the complaint, Villarreal told these investors that the SAM Fund would invest in companies listed on the Mexican stock exchange. Villarreal made numerous misrepresentations to these investors. Among other things, Villarreal repeated his earlier lies about Fund II and Fund III’s purported acquisition and profitable operation of a Mexican pipeline manufacturer, he stole at least $327,000 of SAM Fund assets, and Villarreal’s trading was a massive failure, resulting in an 83% loss for the SAM Fund.

The complaint also alleges that Villarreal defrauded the SAM Fund investors between March 2012 and May 2012 by offering to “exchange” limited partnership units he claimed he owned in Fund III for the SAM Fund investors’ limited partnership units in the SAM Fund. Eight SAM Fund investors accepted Villarreal’s offer and exchanged their SAM Fund units, which they had purchased for a total of $3.1 million. Villarreal, however, lied about the number of Fund III limited partnership units he owned and the value of the Fund III units. Villarreal did not disclose to these investors that the Fund III limited partnership units were worthless.

The Commission’s complaint alleges that Villarreal violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Commission’s complaint seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.

SEC charges Bitcoin promoter with offering unregistered securities

The Securities and Exchange Commission today charged the co-owner of two Bitcoin-related websites for publicly offering shares in the two ventures without registering them. 

 An SEC investigation found that Erik T. Voorhees published prospectuses on the Internet and actively solicited investors to buy shares in SatoshiDICE and FeedZeBirds.  But he failed to register the offerings with the SEC as required under the federal securities laws.  Investors paid for their shares using Bitcoin, a virtual currency that can be used to purchase real-world goods and services and exchanged for fiat currencies on certain online exchanges.  The profits ultimately earned by Voorhees through the unregistered offerings totaled more than $15,000.

Voorhees agreed to settle the SEC’s charges by paying full disgorgement of the $15,843.98 in profits plus a $35,000 penalty for a total of more than $50,000.

 According to the SEC’s order instituting a settled administrative proceeding, the first unregistered offering occurred in May 2012 as 2,600 bitcoins were raised through the sale of 30,000 shares in FeedZeBirds, which promises to pay bitcoins to Twitter users who forward its sponsored text messages.  Then in two separate offerings from August 2012 to February 2013, SatoshiDICE sold 13 million shares and raised 50,600 bitcoins that were worth approximately $722,659 at the time.  SatoshiDICE, which calls itself the biggest Bitcoin-betting game in the world and pays out casino-like winnings in bitcoins, ultimately returned these offering proceeds to investors in a buy-back transaction in July 2013.  A significant rise in the exchange rate of U.S. dollars to bitcoins actually increased the amount paid back to investors to approximately $3.8 million for 45,500 bitcoins.

The SEC’s order finds that Voorhees actively solicited investors to buy FeedZeBirds and SatoshiDICE shares on a website dedicated to Bitcoin known as the Bitcoin Forum.  Voorhees also publicly promoted the unregistered offerings on other Bitcoin-related websites as well as Facebook.  The first unregistered offering was explicitly referred to as the “FeedZeBirds IPO.”  Despite these general solicitations, no registration statement was filed for the FeedZeBirds or SatoshiDICE offerings, and no exemption from registration was applicable to these transactions.

The SEC’s order finds that Voorhees violated Sections 5(a) and 5(c) of the Securities Act of 1933.  Voorhees consented to cease and desist from committing or causing any future violations of the registration provisions without admitting or denying the SEC’s findings.  In addition to the monetary sanctions, Voorhees agreed that he will not participate in any issuance of any security in an unregistered transaction in exchange for any virtual currency including Bitcoin for a period of five years.  The entry of the SEC’s order disqualifies Voorhees from relying on Rule 506(b) and 506(c) of Regulation D under the Securities Act, as defined in the bad actor disqualification provisions of Rule 506.

SEC halts Ponzi scheme targeting Dominican and Brazilian immigrants

The Securities and Exchange Commission today announced that on Tuesday it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S.  The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze.  That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets.  After the SEC staff implemented the asset freeze, at the SEC’s request the court lifted the seal today, permitting public announcement of the SEC’s charges.

The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme.  In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds. 

According to the SEC’s complaint, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites.  The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters.  As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

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