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Author Archives: David Weintraub

SEC Awards $5 Million to Whistleblower

On April 20, 2020 the SEC announced a $5 million award to a whistleblower who provided significant information that led to a successful enforcement action. The whistleblower provided critical evidence of wrongdoing, which saved the SEC a significant amount of time and resources. Additionally, the SEC noted that the informant suffered a unique hardship as a result of raising concerns internally.

The SEC has awarded approximately $430 million to 80 individuals since issuing its first award in 2012. According to the CEO of the SEC’s Office of the Whistleblower, “The whistleblower award today is the seventh award the SEC has announced to individual whistleblowers in the last month.” “These awards demonstrate the valuable contributions whistleblowers make to the protection of markets and investors and we encourage people to move forward with information about possible securities law violations.”

All payments through this program are made from an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. The Commission emphasizes, that no money has been taken or withheld from harmed investors to pay whistleblower awards. The informant’s award is based on a percentage of the money collected in fees and sanctions paid by the violators they uncovered, and if they provided the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10% to 30% of the money collected when the monetary sanctions exceed $1 million.

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not discloses information that could reveal a whistleblower’s identity. If you believe you have information of a material nature that would be helpful to the SEC’s mission, David A. Weintraub, P.A. may be able to represent you in connection with your whistleblower claim.

SEC Orders Merrill Lynch to Reimburse Investors for Violating Mutual Funds Share Class Selection Disclosures

Today the SEC announced settled charges against Merrill Lynch, Pierce, Fenner & Smith, Incorporated and two other self-reporting advisory firms and ordered more than $139 million to be returned to investors as part of the agreement.  According to the Order, against Merrill Lynch, the proceedings arise out of breaches of fiduciary duty and inadequate disclosures in connection with its mutual fund share class selection practices and the fees it received.  During the relevant period, Merrill Lynch purchased, recommended, or held for advisory clients’ mutual fund share classes that charged higher fees instead of lower-cost share classes of the same funds for which the clients were eligible. Mutual Funds typically offer investors different types of shares or shares classes.  Each class represents an interest in the same portfolio of securities with the same investment objective; making the fee structure their main difference.   For instance, Institutional shares, or Class I shares typically pay lower annual fund operating expenses over time, equaling to higher returns than other classes that charge 12b-1 fees.   The recurring 12b-1 fees are included in the total annual fund operating expenses and deducted automatically from the mutual funds’ assets.  These recurring fees are paid generally to the broker-dealer that distributed or sold the shares, Merrill Lynch, in this case.    Additionally, the SEC found that Merrill Lynch failed to disclose these conflicts of interest relating to its receipt of the fees and/or its choice of mutual fund class that would pay such fees.  

The order states that they are censured, and that they cease and desist from future related violations and that they pay disgorgement and prejudgment interest totaling over $425,000 and that they comply with certain undertakings, including returning the money to investors.   It’s worth noting that, Merrill Lynch, self-reported to the SEC the aforementioned violation. 

SEC Awards Over $27 Million to Whistleblower

Today the SEC announced an award of more than $27 million to a whistleblower who alerted the agency to misconduct occurring, in part, overseas.  The record demonstrated that the informer voluntarily provided original information to the Commission that led to the successful enforcement of the action.  The whistleblower provided a substantial amount of ongoing assistance and cooperation by meeting with staff numerous times and providing relevant documents and critical investigative leads that advanced the investigation and saved the Commission a significant amount of time and resources.  Additionally, the SEC noted that the informant repeatedly and strenuously raised its concerns internally. 

The SEC has awarded approximately $430 million to 80 individuals since issuing its first award in 2012.  All payments through this program are made from an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  The Commission emphasizes, that no money has been taken or withheld from harmed investors to pay whistleblower awards.  The informant’s award is based on a percentage of the money collected in fees and sanctions paid by the violators they uncovered, and if they provided the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10% to 30% of the money collected when the monetary sanctions exceed $1 million.

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not discloses information that could reveal a whistleblower’s identity.  If you believe you have information of a material information that would be helpful to the SEC’s mission, David A. Weintraub, P.A. may be able to represent you in connection with your whistleblower claim.

Alabama Securities Commission Issues a Cease and Desist Order Against Ultra BTC Mining LLC

The Alabama Securities Commission issued a Cease and Desist Order against Ultra BTC Mining LLC aka Ultra Mining (Ultra) and its CEO and registered agent David Taylor, as well as Laura Branch, an agent for Ultra. Through the Order the Commission requested the parties to stop a purportedly fraudulent cryptocurrency cloud mining scheme. Ultra is also under investigation for its fraudulent misrepresentations related to Coronavirus 2019 (COVID-19) donations.

The Commission reviewed Ultra’s website representations and found that the firm claims to provide a modern, high efficiency platform for rental services for cryptocurrency cloud mining. The firm offers an investment opportunity, on their website, in the form of “mining plans” where investors invest in two-year plans for the purpose of mining cryptocurrencies. The mining activities are to be performed or leased by Ultra and the investment return is based on the hash rate purchased. Through its website Ultra offers an earnings-calculator to simulate investment returns of approximately 105% per annum. These projections are unrealistic based on any reasonable investment assumptions, unsustainable, and are per se fraudulent. According to the website, investors will benefit from the connection to mining pools. It also offers an “affiliate program” wherein investors earn a commission for referring business to the company. Furthermore, the Order states that Ultra placed an unsubstantiated claim on their website that they had donated $100,000 to UNICEF to fight COVID-19.

The Commission asserted that neither Ultra nor Ms. Branch had any registrations or licenses, in any capacity. Furthermore, Ultra violated Alabama’s securities laws by issuing and acting as agents in the sales of securities, in this case the mining plans. The Order does not prevent the Commission from seeking such other civil or criminal remedies that are available. If you believe you have been the victim or this or other investment scams, David A. Weintraub, P.A. would be interested in speaking with you.

Jury Finds Investment Adviser and its Owner Liable for Fraud.

On March 16, 2020 jurors in a Connecticut federal court returned a verdict in favor of the SEC and finding Westport Capital Markets, LLC and Christopher McClure guilty of fraud.  According to the complaint, Westport and McClure had a fiduciary duty to their investment advisory clients and were obligated to manage their clients’ portfolios in the clients’ best interests.  Instead, they violated their fiduciary duty and defrauded their clients.   The complaint stated that Westport and McClure received undisclosed mark-ups when Westport, acting as principal, sold securities from its proprietary brokerage account to client accounts but failed to disclose its financial conflict of interest to clients.  Westport Capital Markets, LLC is a Westport, Connecticut registered investment adviser and broker dealer.  It has been registered since 1996.  It provided services to a variety of clients, including retirees and elderly persons who relied on investments in their Westport advisory accounts for income.  Christopher McClure is Westport’s President, Chief Financial Officer and Chief Compliance Officer.  Since 2007, McClure controlled Westport and has been the sole or majority owner of the firm.  

Since 2011, Westport entered into a Selling Dealer arrangement with investment banks.  As a selling dealer, Westport purchased shares of offerings in its own brokerage account at a discount.  Then, it sold those securities to its advisory clients’ accounts at the full public offering prices, obtaining mark-ups.   Westport and McClure obtained standing authority, from entrusting clients, to make investments decisions that were consistent with their clients’ investment objectives and best interest, but they misused that authority when they repeatedly purchased risky securities in clients’ accounts that not only generated undisclosed mark-ups and other fees but these accounts already paid a significant advisory fee to Westport to manage their investments.  They were also required to disclose all conflicts of interest, however they failed to inform clients that Westport and McClure benefited financially from the investment decisions that were made in these discretionary accounts.

During the relevant period, Westport received a total of $650,000 in mark-ups from advisory client accounts and the firm received $1.7 million in advisory fees.  The complaint stated that for some clients, the amount of undisclosed mark-ups equaled 70 percent or more of the amount of advisory fees paid by that account.  At least two clients’ accounts generated more in mark-ups that in advisory fees.  Cumulatively, their advisory clients’ accounts have lost approximately $1.2 million to date as a result of these unsuitable investments, with approximately $890,000 in realized losses.  

SEC Charged Russian National for Defrauding Older Investors in Fake Certificates of Deposit Scam

The SEC announced today that Denis Georgiyevich Sotnikov, a Russian national, who resides in Hallandale Beach, Florida, is involved in an ongoing fraudulent scheme in which US investors, many of whom are older and using their retirement savings, are lured into buying fictitious Certificates of Deposit (CDs) at above market rates.  The Complaint stated that Sotnikov targeted investors who were searching for CDs with high rates.  These ads included links to phony and spoofed websites which falsely claimed that the firms offering the CDs were members of FINRA and the FDIC.  The spoofed websites use domain names similar to the actual sites of legitimate financial institutions. 

As a result of the intricate scheme, unsuspecting investors see advertising for the spoofed websites at the top of their search results when searching for CDs with attractive rates.  After the potential investors visit the spoofed websites, they are directed to call a number to speak with an account executive impersonating a real registered representative, who instructs investors to wire funds to so-called clearing partners.  In reality, these clearing partners are entities used by Sotnikov to launder and misappropriate investor funds. 

According to the SEC, from November 2014 through March 2020, there were at least 24 websites spoofing actual financial firms and 8 fictitious financial firms that resulted in over $26 million in known investor losses.  The investigation found that Sotnikov’s participation was essential to the fraudulent scheme.  He organized and controlled all the entities involved as supposed clearing or offering firms which were created by Sotnikov to serve as conduits to receive wire transfers from duped investors in advancement of the fraudulent scheme.  

The SEC’s complaint filed in federal court charged Sotnikov and the entities he controlled with violating the antifraud provisions of the federal securities laws and Sotnikov with aiding and abetting those violations.  The SEC is looking for permanent injunctive relief and the return of allegedly ill-gotten gains with prejudgment interest and penalties.   In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced related criminal charges and are pursuing asset seizures. 

FINRA Fines Robinhood Financial, LLC $1.25 Million for Best Execution Violations

FINRA announced today, that it has fined online broker, Robinhood Financial, LLC $1.25 million for violations relating to its best execution of customer equity orders and related supervisory failures.  Robinhood Financial provides online trading for retail investors and offers customers commission-free trading when using the platform’s online mobile trading application or website to submit orders to trade in U.S.  During the investigation period from October 1, 2016 through November 9, 2017, Robinhood allegedly, routed its customers’ non-directed equity orders to four broker-dealers for execution.  Robinhood and the broker dealers engaged in an arrangement known as “payment for order flow.”   This means that although Robinhood provided commission-free trading to its customers, it nonetheless received compensation for that trading through its payment for order flow model.  

FINRA found that for more than a year, Robinhood failed to exercise reasonable diligence to ascertain whether these four broker-dealers provided the best market for the subject securities to ensure its customers received the best execution quality from these as compared to other execution venues.  Additionally, Robinhood did not systematically review certain order types, and it failed to establish and maintain a supervisory system, including written supervisory procedures, reasonable designed to achieve compliance with its best execution obligations.  

According to Jessica Hopper, Senior Vice President and Acting Head of FINRA’s Department of Enforcement, “Best execution of customer orders is a key investor protection requirement”, “FINRA member firms must exercise reasonable diligence in performing regular and rigorous reviews to achieve best execution for their customers.”  Robinhood, which has been a FINRA member since Oct. 2013 and serves around 10 million people.  In settling this matter, Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.   The company agreed to pay the fine and hire an independent consultant to conduct a comprehensive review of its systems and procedures.

FINRA Bans Two Registered Representatives for Churning Accounts of Elderly Client with Alzheimer’s.

On October 21, 2019, FINRA announced that it had barred Ami Forte and Charles Lawrence of Florida for their roles in churning accounts belonging to a 79-year-old customer who suffered from severe Alzheimer’s and dementia.  According to the Complaint, Forte and Lawrence engaged in unsuitable and excessive trading, specifically in the 10 months preceding his death, the Forte group effected more than 2,800 trades in the victim’s accounts generating around $9 million in commissions.  Over half of these transactions involved short-term trading in long-maturity bonds, including municipal bonds, intended for customers with long-term investment horizons.  

The investigation revealed that Forte first met the customer (referred to as RS) in the late 90s when they began a romantic relationship.  Forte, who was the broker of record in the accounts, and maintained near daily contact with the customer, used her position of trust and confidence to exploit RS and generate excessive commissions from his accounts.  During the relevant period, RS held approximately $192 million in six accounts in Morgan Stanley.  In 2001, Forte established the Forte Group at Morgan Stanley, which she headed as Senior Vice President.  Lawrence joined the Forte Group at its inception, and by 2009, he was mainly entering the Forte Group’s day to day trades in the RS accounts.  It’s worth noting, that RS accounts generated approximately 94 percent of Forte’s commission revenues.  On the other hand, Lawrence did not received commissions from the trading activity in the RS Accounts.  He was paid an annual salary plus bonuses.  

According to the settlement, Forte and Lawrence met and spoke frequently with RS and knew he suffered severe cognitive impairment.  It states that multiple treating physicians, some as early as 2008, determined that RS suffered from dementia or Alzheimer’s or both.  During the investigation period, at least four separate physicians on approximately five occasions diagnosed RS with severe cognitive impairment.  Forte and Lawrence exploited RS’s vulnerable mental and physical condition to unsuitability and excessive trade his accounts, it continued until shortly before RS’s death.  For instance, on June 20, 2012, RS entered the hospital for the final time before his passing in August 2012.  Despite being hospitalized and not in contact with anyone from the Forte Group, between June 20 and June 29, 2012, RS’s accounts had over $14 million in transactions.  Forte and Lawrence never reported RS’s condition to Morgan Stanley.  Instead, they increased their level of trading in RS’s accounts in the months after RS’s diagnosis.  

In settling this matter, Forte and Lawrence neither admitted nor denied the charges, but consented to the entry of FINRA’s finding. 

FINRA Fined Accelerated Capital Group and Ordered it to Pay Restitution to Six Customers

FINRA censured and fined Accelerated Capital Group $400,000 for failing to establish and maintain a supervisory system and written procedures reasonably designed to achieve compliance with applicable laws, regulations and rules.  The investigation found that the Firm’s failures allowed a registered representative to engage in excessive and unsuitable transactions.  The firm’s supervisory failures resulted in harm to vulnerable customers, five of them over the age of 80, and at least seven living on fixed incomes.  These transactions resulted in over $650,000 in commissions.   

The firm’s supervisory system was not reasonably designed to identify unauthorized, excessive, or unsuitable trades effected by representatives in their customers’ accounts.  The system failed to ensure that representatives made customers aware of all commissions, costs and breakpoints associated with mutual fund transactions, specifically ones relating to Class A mutual funds and front-loaded fees.  Additionally, the investigation found that the firm failed to report customer complaints and an internal disciplinary action to FINRA. 

On March 15, 2019, an Office of Hearing Officers decision became final in which Accelerated Capital Group was censured and fined.  It was also ordered to pay $422,029.53, plus interest, in restitution to six customers.

If you have not hired an attorney you may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

FINRA Fined Corinthian Partners, LLC its Chairman/President and its CCO

On March 18, 2019, FINRA censured and fined Corinthian Partners, LLC, together with the firm’s Chairman/President and CCO, for failure to establish, maintain, and enforce a reasonably designed supervisory system, related to the sale of Non-Traditional ETPs (NT-ETPs) to customers.  According to FINRA’s Regulatory Notice 09-31, NT-ETPs “are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.”  Due to NT-ETPs’ inherent risks and the complexity of the products, it is required that firms oversee the transactions and monitor for unsuitability and risks particular to non-traditional ETPs such as the risk incurred by long-term holding of a product that resets daily. 

The investigation revealed that a sole registered representative recommended that his customers invest almost exclusively in NT-EFTPs and hold them for extended periods of time.  The registered representative solicited 1,910 purchases totaling $279 million and 1,663 transactions that amounted to $275 million in sales of NT-ETPs.  These transactions generated approximately $890,000 in commissions, which represented a significant portion of the firm’s revenue.  Despite this activity, the firm lacked a reasonably-designed supervisory system and WSPs to ensure suitability of recommendations, failed to ensure that new account documents were filled out completely and accurately.  Additionally, the firm’s principals admitted that they had joint responsibility for establishing, maintaining and enforcing the firm’s supervisory system and its WSPs, they failed to identify and investigate red flags of unsuitable trading.

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a reasonably designed supervisory system.  Corinthian Partners, LLC was censured and fined $30,000, the firm’s principals were also fined and suspended from association with any FINRA member in any capacity for 30 business days. 

If you have not hired an attorney you may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.