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On September 30, 2013, the SEC announced that it had charged a woman living in South Florida with defrauding investors in a Ponzi scheme and affinity fraud that targeted the local Colombian-American community and involved purported investments in immigration bail bonds.

The SEC alleged that Jenny E. Coplan told investors that her company, Immigration General Services operated through an investment broker that would invest the funds she raised in immigration bail bonds and turn a profit.  Coplan promised interest payments ranging from 60 to 108 percent annually.  She also assured investors that their money was safe because it was insured by the Federal Deposit Insurance Corporation (FDIC).  However, Coplan never placed investor funds with any investment broker, and their money was never FDIC insured.  Instead, she paid supposed profits to earlier investors using funds from newer investors in classic Ponzi fashion, and she stole approximately $878,000 of investor money for her own personal use.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida also announced on September 30, 2013 criminal charges against Coplan.

According to the SEC’s complaint, Coplan solicited investors through personal conversations over the phone and in person, and many of her targets were Colombian-Americans and Colombians living in Florida.  She raised approximately $4 million from more than 90 investors in Florida, California, Georgia, Texas, Canada, and Colombia.

The SEC alleged that Coplan created fictitious investor statements that she disseminated to hide her misuse of the money and lead investors to believe their investments were growing.  Furthermore, Coplan e-mailed one investor two purported FDIC statements reflecting insured balances of $107,000 and $250,000, lulling the investor to think the investment was safe.  When her scheme began to unravel in 2011, Coplan blamed the purported investment broker for the delay in interest payments to investors, telling them the broker held the investors’ funds to cover deficiencies because Coplan had failed to meet certain monthly investment quotas.  Even though Immigration General Services had virtually no funds in its bank accounts and was unable to honor investors’ increasing redemption requests, Coplan tried in late 2011 to create a false appearance that the company was back to business as usual.  She issued non-sufficient fund checks to investors purporting to be their monthly profits.  Through her continued misstatements, Coplan was able to raise another $578,000 from new investors before the scheme collapsed entirely.

The SEC’s complaint against Coplan, who lives in Tamarac, Florida, seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctions.

On September 23, 2013, the SEC announced that it had filed charges against 10 former brokers at an Albany, N.Y.-based firm at the center of a $125 million investment scheme for which the co-owners have received jail sentences.

The SEC filed an emergency action in 2010 to halt the scheme at McGinn Smith & Co. and freeze the assets of the firm and its owners Timothy M. McGinn and David L. Smith, who were later charged criminally by the U.S. Attorney’s Office for the Northern District of New York and found guilty.

The SEC’s Enforcement Division alleged that 10 brokers who recommended the unregistered investment products involved in the scheme made material misrepresentations and omissions to their customers.  The registered representatives ignored red flags that should have led them to conduct more due diligence into the securities they were recommending to their customers.

The SEC’s order named 10 former McGinn Smith brokers in the administrative proceeding:

• Donald J. Anthony, Jr. of Loudonville, N.Y. 
• Frank H. Chiappone of Clifton Park, NY. 
• Richard D. Feldmann of Delmar, N.Y.
• William P. Gamello of Rexford, N.Y. 
• Andrew G. Guzzetti of Saratoga Springs, N.Y.
• William F. Lex of Phoenixville, Pa.
• Thomas E. Livingston of Slingerlands, N.Y. 
• Brian T. Mayer of Princeton, N.J. 
• Philip S. Rabinovich of Roslyn, N.Y. 
• Ryan C. Rogers of East Northport, N.Y. 

According to the SEC’s order, the scheme victimized approximately 750 investors and led to $80 million in investor losses.  Guzzetti was the managing director of McGinn Smith’s private client group from 2004 to 2009, and he supervised brokers who recommended the firm’s offerings.  The SEC’s Enforcement Division alleged that despite his knowledge of serious red flags, Guzzetti failed to take any action to investigate the offerings and instead encouraged the brokers to sell the notes to McGinn Smith customers.

The SEC’s Enforcement Division alleged that the other nine brokers charged in the administrative proceeding should have conducted a searching inquiry prior to recommending the products to their customers.  The brokers continued to sell McGinn Smith notes even after being told that customers placed in some of the firm’s offerings could only be redeemed if a replacement customer was found.  That was contrary to the offering documents.  In January 2008, the brokers learned that four earlier offerings that raised almost $90 million had defaulted, yet they failed to conduct any inquiry into subsequent offerings and continued to recommend McGinn Smith notes.

The SEC’s order alleged that the misconduct of Anthony, Chiappone, Feldmann, Gamello, Lex, Livingston, Mayer, Rabinovich, and Rogers resulted in violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The order alleged that Guzzetti failed to reasonably supervise the nine brokers, giving rise to liability under Section 15(b)(6) of the Exchange Act, incorporating by reference Section 15(b)(4).

The SEC’s civil case continues against the firm as well as McGinn and Smith, who were sentenced to 15 and 10 years imprisonment respectively in the criminal case. 

On September 23, 2013, the SEC charged TD Bank and a former executive with violating securities laws in connection with a massive South Florida-based Ponzi scheme conducted by Scott Rothstein, who is now serving a 50-year prison sentence.

The SEC alleged that TD Bank and its then-regional vice president Frank A. Spinosa defrauded investors by producing a series of misleading documents and making false statements about accounts that Rothstein held at the bank and used to perpetuate his scheme.  Spinosa falsely represented to several investors that TD Bank had restricted the movement of the funds in these accounts when, in fact, Rothstein could transfer investor money however he desired.  Spinosa also orally assured investors that certain accounts held balances totaling millions of dollars, but each account actually held zero to $100.

TD Bank agreed to settle the SEC’s charges in an administrative proceeding and pay $15 million.  The SEC filed a complaint against Spinosa in U.S. District Court for the Southern District of Florida.

According to the SEC’s order and complaint, Rothstein claimed to represent plaintiffs who had reached purported legal settlements that were confidential and payable over time by large corporate defendants.  He claimed that the purported plaintiffs were willing to sell their periodic payments to investors at a discount in exchange for one lump-sum payment.  The legal settlements were fake and the plaintiffs and defendants were not real.  Rothstein told investors that the purported defendants had deposited the entire settlement amounts into attorney trust accounts.  Rothstein opened 22 such accounts at Commerce Bank and TD Bank (the two merged in 2008) from November 2007 to October 2009. 

The SEC alleged that as Rothstein’s scheme began to unravel in the fall of 2009, Spinosa made false statements to investors about the safety of their investments that enabled Rothstein to continue raising funds for the scheme.  Spinosa executed so-called “lock letters” from TD Bank purporting to irrevocably restrict Rothstein’s trust accounts.  Under these conditions, TD Bank could only distribute funds in the accounts to the investor’s bank account designated in the lock letter.  However, the representations were purely false as Spinosa did not apply any procedures to block the accounts or implement any system to restrict Rothstein from moving money out of the trust accounts.  Spinosa also misrepresented to Rothstein’s investors that the lock letters were commonplace at TD Bank when, in fact, they were never previously used by the bank.  In fact, when Spinosa instructed his assistant to prepare the letters on TD Bank letterhead, she questioned whether it was even permissible because she had never seen such a letter before.  Spinosa confirmed that she should prepare the letter for his signature anyway.  Later, a vice president and branch manager who reported to Spinosa noted to him shortly after the first lock letter went out in August 2009 that the “lock” instructions put onto an account would have no practical effect because Rothstein could still transfer the money without bank officials being alerted.  Spinosa dismissed those concerns.

The SEC further alleged that Spinosa provided false assurances to two different groups of investors that certain trust accounts held the multi-million dollar balances claimed by Rothstein.  On Aug. 17, 2009, Spinosa participated in a conference call with Rothstein and representatives of an investor group who asked how much money was in a particular account.  Spinosa responded that it held $22 million – the amount the investor was expecting to hear.  Spinosa had full access to the account information to know the actual account balance was no more than $100.  The following month, Spinosa met with the same group after it made additional investments with Rothstein, and falsely assured the investors that their money was safe because the provisions of the lock letter restricted the movement of their money.  Also in September 2009, a different investor group bought a purported $20 million settlement from Rothstein, and one of the investor group’s representatives obtained a TD Bank deposit slip that indicated a $0 balance as of that morning for the account that purportedly held the investor’s $20 million.  Rothstein falsely stated that the funds were indeed in the account, but the funds would not appear “available” on the deposit slip because they were in TD Bank’s “federal wire queue.”  Rothstein and representatives from the investor group met with Spinosa on Sept. 14, 2009, and Spinosa falsely represented that the $20 million did not appear as available funds for the same reason provided by Rothstein.  Spinosa falsely represented that the lock letter restricted the movement of their money.  In reality, TD Bank was not holding the money in such a queue, and the account didn’t contain the $20 million.

TD Bank consented to the entry of an administrative order finding that it violated Sections 17(a)(2) and (3) of the Securities Act of 1933.  Without admitting or denying the SEC’s findings, TD Bank agreed to pay $15 million and cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act.

The SEC’s complaint against Spinosa charged him with violating Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.  Spinosa also is charged with aiding and abetting Scott Rothstein’s violations of Section 10(b) of the Exchange Act and Rule 10b-5.  The complaint is seeking disgorgement plus prejudgment interest, financial penalties, and a permanent injunction.

On September 9, 2013, the SEC announced that they had charged a Miami-based attorney and other perpetrators of a prime bank investment scheme that promised exorbitant returns from a purported international trading program.

Prime bank schemes lured investors to participate in a sham international investing opportunity with phony promises of exclusivity and enormous profits.  The SEC alleged that attorney Bernard H. Butts, Jr. acted as an escrow agent to enable Fotios Geivelis, Jr. and his purported financial services firm Worldwide Funding III Limited, to defraud approximately 45 investors out of more than $3.5 million they invested in a trading program that did not actually exist.  Geivelis, who lives in Tampa and used the alias “Frank Anastasio” with investors, touted returns of 6.6 million Euros (approximately $8.7 million converted to U.S. dollars)  within 15 to 45 business days on an initial investment of $60,000 to $90,000 in U.S. dollars.  Geivelis and Butts allegedly assured investors that their funds would remain with Butts in an escrow account until Worldwide Funding acquired the bank instruments necessary to generate the promised returns.  Butts instead had been doling out investor funds almost as soon as they were received to enrich himself, sales agents, and Geivelis, who had been spending the money on such personal expenses as travel and gambling.

The SEC’s complaint, filed under seal on August 29 in federal court in Miami, also charged three sales agents who Geivelis and Butts paid to sell interests in the scheme: Douglas J. Anisky of Delray Beach, Florida, James Baggs of Lake Forest, California, and Sidney Banner of Delray Beach, Florida.  The court granted the SEC’s request for an asset freeze on August 30, and the case was unsealed late Friday, September 6th.

According to the SEC’s complaint, investors were lured through the Internet, telephone, and personal contact with promises of extraordinary profits.  Investors were told their $60,000 to $90,000 investment would pay for bank charges to lease a standby letter of credit (SBLC) in the amount of 10 million Euros from a banking group in Europe.  The SBLCs were to be used to acquire loans, and the funds from the loans were to be placed in a securities trading program.  Investors were promised that after their initial profit of at least 6.6 million Euro within 15 to 45 business days, the securities trading program would generate a weekly return of approximately 14 percent for 40 to 42 weeks.

The SEC alleged that investors were falsely promised that their money was being deposited into Butts’ attorney trust account, and Butts would not release the funds until he received proof from the receiving bank that a $10 million Euro SBLC had been deposited into the securities trading program to generate profits for investors.  Contrary to these representations by Butts, Geivelis, and the sales agents, no SBLC acquisitions ever occurred, no loans were obtained, and no promised returns were earned in a trading program or paid to investors. Investors were not told that instead of using the funds to obtain SBLCs, Butts and Geivelis each took approximately 45 percent and paid approximately 10 percent to the sales agents.

The SEC’s complaint charged all defendants with violations of the antifraud and securities registration provisions of the federal securities laws.  The complaint also charged Butts, Geivelis, Anisky, Banner, Express Commercial Capital, and Baggs with violations of the broker-dealer registration provisions of the federal securities laws.  The SEC is seeking disgorgement of ill-gotten gains, financial penalties, and permanent injunctions.  The SEC’s complaint named several relief defendants: Butts’ law firm, his wife Margaret A. Hering, and Butts Holding Corporation as well as two other companies with ties to Geivelis (Global Worldwide Funding Ventures) and Anisky (PW Consulting Group).  The complaint named relief defendants for the purposes of recovering any ill-gotten assets from the fraud that may be in their possession.

On September 3, 2013, the SEC announced that it had charged a purported money manager in New York with conducting a free-riding scheme to defraud three brokerage firms, and then bilking several investors out of nearly a half-million dollars that he stole to fund his luxurious lifestyle that included a Bentley automobile, summers in the Hamptons, and casino junkets.

The SEC alleged that Ronald Feldstein caused more than $2 million in losses for the brokerage firms that he victimized in the free-riding scheme.  Free-riding occurs when customers buy or sell securities in their brokerage accounts without having the money or shares to actually pay for them.  Feldstein opened three separate brokerage accounts in the names of two investment funds that he created.  He allegedly had no intention to pay for the stocks that he purchased if they resulted in big losses.  Feldstein planned to walk away from any transactions where the price declined substantially after the trade date, and planned to use sales proceeds to pay for the purchases if the price of a stock increased.

The SEC further alleged that Feldstein later began soliciting investments by targeting owners of businesses that he had frequented for decades, including a dry cleaner and a car leasing and servicing company.  Feldstein convinced them to provide funds for him to invest on their behalf, promising such profitable opportunities as a successful hedge fund, a promising penny stock, and an initial public offering (IPO) of a fashion company.  However, Feldstein allegedly never invested this money, instead converting it for his personal use without their knowledge.

According to the SEC’s complaint, Feldstein and the two purported investment funds – Mara Capital Management LLC and Vita Health of America LLC – traded through a type of account that brokerage firms offer to customers with the understanding that the customer has sufficient assets held with a third-party custodial bank to cover the cost of the trades.  Feldstein and the funds never disclosed to three broker-dealers that they were simply gambling with the brokerage firms’ money.  Their plan was to refuse to issue instructions to settle the trades, and stick the broker-dealers with the unprofitable positions.  The free-riding scheme allegedly began in September 2008 and continued until February 2009.

The SEC alleged that Feldstein shifted his fraudulent conduct to individual investors later in 2009.  He induced investors to give him money they typically had saved for their retirement or their children’s education.  Feldstein raised approximately $450,000 based on such false investment promises as a hedge fund that he described as substantial and successful, a penny stock issuer that Feldstein described as the next AT&T/Verizon of the rural Midwest, and the IPO of a purported fashion company.  The investor funds were typically deposited into Feldstein’s personal bank account or the bank account of an entity that he owned so he could spend their money on his personal expenses.

The SEC’s complaint charged Feldstein, Mara Capital, and Vita Health of America with committing violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Feldstein also is charged with violations of Section 17(a) of the Securities Act of 1933. Trademore Capital Management LLC is charged as a relief defendant.  It was unclear from the SEC announcement whether customers have initiated FINRA arbitrations, or any other type of securities arbitration.

On August 30, 2013, the SEC announced charges against a San Diego-based investment advisory firm and its president for allegedly steering winning trades to favored clients and lying about how certain money was being spent.

The SEC’s Enforcement Division alleged that J.S. Oliver Capital Management and Ian O. Mausner engaged in a cherry-picking scheme that awarded more profitable trades to hedge funds in which Mausner and his family had invested.  Meanwhile they doled out less profitable trades to other clients, including a widow and a charitable foundation.  The disfavored clients suffered approximately $10.7 million in harm.

The SEC also alleged that Mausner and J.S. Oliver misused soft dollars, which are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment adviser’s client accounts.  If appropriately disclosed, an investment adviser may retain the soft dollar credits to pay for expenses, including a limited category of brokerage and research services that benefit clients.  However, Mausner and J.S. Oliver misappropriated more than $1.1 million in soft dollars for undisclosed purposes that in no way benefited clients, such as a payment to Mausner’s ex-wife related to their divorce.

According to the SEC’s order instituting administrative proceedings, Mausner engaged in the cherry-picking scheme from June 2008 to November 2009 by generally waiting to allocate trades until after the close of trading or the next day.  This allowed Mausner to see which securities had appreciated or declined in value, and he gave the more favorably priced securities to the accounts of four J.S. Oliver hedge funds that contained investments from Mausner and his family.  Mausner profited by more than $200,000 in fees earned from one of the hedge funds based on the boost in its performance from the winning trades he allocated.  Mausner also marketed that same hedge fund to investors by touting the fund’s positive returns when in reality those returns merely resulted from the cherry-picking scheme.

The SEC’s order alleged that J.S. Oliver and Mausner willfully violated the antifraud provisions of the federal securities laws and asserts disclosure, compliance, and recordkeeping violations against them.  The order also alleged that Drennan willfully aided, abetted, and caused J.S. Oliver’s fraud violations in the soft dollar scheme.  It was unclear from the SEC’s announcement whether customers initiated FINRA arbitrations, or any other type of securities arbitrations.

On August 26, 2013, the SEC announced that it had charged a Noblesville, Indiana resident and his company with defrauding investors in a Ponzi scheme that targeted retirement savings.   The SEC obtained an emergency court order to freeze the assets of Marcum and his company.

The SEC alleged that John K. Marcum touted himself as a successful trader and asset manager to raise more than $6 million through promissory notes issued by his company Guaranty Reserves Trust.  Marcum helped investors set up self-directed IRA accounts and gained control over their retirement assets, saying he would earn them strong returns on the promissory notes by day-trading in stocks while guaranteeing the safety of their principal investment.  Yet Marcum did little actual trading and almost always lost money when he did.  Throughout his scheme, Marcum provided investors with false account statements showing annual returns of more than 20 percent.  Meanwhile, he used investor funds to pay for his luxurious personal lifestyle and finance several start-up companies.

According to the SEC’s complaint filed in federal court in Indianapolis, Marcum began his scheme in 2010.  Investors gave Marcum control of their assets by either rolling their existing IRA accounts into the newly-established self-directed IRA accounts or by transferring their taxable assets directly to brokerage accounts that Marcum controlled.  Marcum and certain investors co-signed the promissory notes, and Marcum then placed them in the IRA accounts.

The SEC alleged that Marcum assured investors he could safely grow their money through investments in widely-held publicly-traded stocks, and he promised annual returns between 10 percent and 20 percent.  Marcum also told a number of investors that their principal was “guaranteed” and would never be at risk.  He falsely told at least one investor that her principal would be federally insured.  In the little trading he has done, Marcum has suffered losses amounting to more than $900,000.  He has misappropriated the remaining investor funds for various unauthorized uses.

According to the SEC’s complaint, Marcum used investor money as collateral for a $3 million line of credit at the brokerage firm where he used to work.  He took frequent and regular advances from the line of credit to fund such start-up ventures as a bridal store, a bounty hunter reality television show, and a soul food restaurant owned and operated by the bounty hunters.  None of these businesses appear to be profitable, and Marcum’s investors were not aware that their money was being used for these purposes.  Marcum used nearly $1.4 million of investor money to make payments directly to the start-up ventures and other companies.  He also used more than a half-million dollars to pay personal expenses accrued on credit card bills, including airline tickets, luxury car payments, hotel stays, sports and event tickets, and tabs at a Hollywood nightclub.

The SEC alleged that Marcum did not have the funds needed to honor investor redemption requests.  So he provided certain investors with a “recovery plan” that revealed his intention to solicit funds from new investors so that he could pay back his existing investors.  Marcum had a phone conversation with three investors in June 2013 and admitted that he had misappropriated investor funds and was unable to pay investors back.  During this call, Marcum begged the investors for more time to recover their money.  He offered to name them as beneficiaries on his life insurance policies, which he claimed include a “suicide clause” imposing a two-year waiting period for benefits.  He suggested that if he is unsuccessful in returning their money, he would commit suicide to guarantee that they would eventually be repaid.

The SEC’s complaint alleged that Marcum and Guaranty Reserves Trust violated the antifraud provisions of the federal securities laws.  The SEC sought and obtained emergency relief including a temporary restraining order and asset freeze.  The SEC additionally seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties from Marcum and Guaranty Reserves Trust, and disgorgement of ill-gotten gains from Marcum Companies LLC, which is named as a relief defendant.  It was unclear from the announcement whether customers initiated FINRA arbitrations, or any other type of securities arbitration.