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Monthly Archives: August 2012

SEC Charges Florida Brokers with Defrauding Brazilian Public Pension Funds in Markup Scheme

The SEC charged Fabrizio Neves and Jose Luna, former brokers in Miami, with fraud for overcharging customers approximately $36 million by using undisclosed, excessive fees on structured notes transactions.  The SEC alleged that Neves conducted the scheme while working at LatAm Investments, LLC, a broker-dealer that is no longer in business.  The affected customers were two Brazilian public pension funds, and a Colombian institutional investor.

According to the complaint, from November 2006 to September 2009, Neves negotiated with several U.S. and European commercial banks to structure 12 notes on his customers’ behalf.  Neves, as the funds’ portfolio manager, was authorized to make all trading decisions on the funds’ behalf.  Instead of purchasing structured notes worth approximately $70 million, Neves engaged in a scheme that included trading the notes with one or more accounts in the names of offshore nominee entities that he and Luna controlled, to later buy the same notes at an excessive, baseless mark up price for their customers.  Respondents also altered the structured notes’ term sheets by whiting out or electronically cutting and pasting the markup amounts, over the actual price and trade information, and providing the forged documents to clients.  As a result, the Brazilian funds and the Colombian investor were charged markups as high as 67%, totaling approximately $36 million in overpaid, undisclosed, excessive fees.  Both Neves and Luna enjoyed inflated salaries and commissions stemming from their scheme.

The SEC also instituted an administrative proceeding against LatAm’s former president, Angelica Aguilera, alleging that she failed to reasonably supervise Neves and Luna.  The SEC said, “Neves lined his pockets with millions of dollars by charging customers exorbitant, fraudulent markups…Neves and Luna thought they could hide their scheme and evade regulators by using offshore nominee companies and forged documents, but they thought wrong.”

Without admitting or denying the charges, Luna has agreed to pay disgorgement of $923,704.85, prejudgment interest of $241,643.51, plus a penalty amount to be determined.

FINRA Fines Rodman & Renshaw for Supervisory & Information Barrier Violations

FINRA fined Rodman & Renshaw LLC $315,000 for supervisory and other violations related to the interaction between the firm’s research and investment banking functions.  Rodman is a New York based broker-dealer that provides investment banking services to private and public companies, as well as research, sales, and trading services to institutional investors.  FINRA also sanctioned Rodman’s former COO, William A. Iommi, Sr., with a fine of $15,000 and a suspension from acting in a principal capacity for 90 days.  Two research analysts were fined $10,000 respectively, for participating in efforts to solicit investment banking business.

According to FINRA, from January 2008 through March 15, 2012, Rodman failed to establish, maintain, and enforce supervisory and compliance procedures to monitor potential conflicts of interest between research and investment banking.  As a result of these deficiencies, Rodman failed to prevent research analysts from engaging in the solicitation of investment banking business, and failed to prevent a member engaged in investment banking activities from having influence or control over research analysts’ evaluations or compensation.  Furthermore, FINRA found that a research analyst was compensated for his contribution to Rodman’s investment banking business.

FINRA stated, “The deficiencies in Rodman’s supervisory system created an environment in which the conflict of interest between research and investment banking was left unmanaged.  FINRA will continue to ensure that firms have adequate supervisory systems tailored to the firm’s business and we will continue to sanction firms that demonstrate a weak culture of compliance and internal controls.”

Without admitting or denying the allegations, Rodman, Iommi, and the two research analysts agreed to the sanctions and consented to the entry of FINRA’s findings.

FINRA Department of Enforcement v. Rodolfo Alvarez

Letter of Acceptance, Waiver and Consent, No. 2011026804401, August 17, 2012, Los Angeles, California

After FINRA opened an investigation into Mr. Alvarez’s alleged borrowing and/or misusing of client funds, he failed to respond to the FINRA staff’s letters requesting information or an on-the-record interview.  Mr. Alvarez responded to a later communication regarding another on-the-record hearing by email.  However, he stated that he no longer resided in the United States and did not plan on returning to provide testimony.  Mr. Alvarez agreed to a letter of acceptance, waiver, and consent, barring him from associating with any FINRA member as a result of his violations of FINRA Rules 8210 and 2010.