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Category Archives: SEC News

The SEC Charged the CEO of Allied Energy Services, LLC with Fraud for Running a Ponzi Scheme

On July 30th, 2020, the Securities and Exchange Commission charged Clarence Dean Alford with defrauding at least 100 investors in a ponzi scheme, which he operated through Allied Energy Services, LLC (“Allied”), where he was CEO. Alford is also a former Georgia state legislator and former member of the Georgia Board of Regents. Alford sold at least $23 million worth of two types of promissory notes to at least 100 investors, claiming that the funds from one brand of note would be used to fund a waste-to-energy conversion plant in Augusta, GA, while funds from the other brand of note would be used to fund Allied’s solar program. The promissory notes were sold between January 2017 and September 2019.

Alford claimed that Allied was a robust and thriving energy company, when in reality it was struggling. In 2016, the company began providing retrofit lighting services, which became its primary source of revenue, not energy production.

Alford sent at least one investor a “Solar Business Plan”, which detailed the plan for Allied’s fake solar business. In it, Alford fraudulently claimed that Allied had partnered with major international solar companies in an effort to solicit investments.

Alford sent approximately $5.79 million of funds from the promissory notes to his personal bank accounts. He used the funds to buy a Tesla and a house in Utah, to pay off credit card bills, withdrew over $51,000 in cash, and made almost $14,000 in political contributions. He also used funds to finance his other business ventures. The scheme eventually collapsed. Allied has since ceased operations and voluntarily filed Chapter 7 bankruptcy in February 2020.

Whether one is a broker, CEO, former politician, or any other occupation, the potential for fraud is always there. If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

Alabama Securities Commission filed a Cease and Desist Order Against John Paul Maroney and two of his Florida companies

On June 25th, 2020, the Alabama Securities Commission filed a Cease and Desist Order against John Paul Maroney and his companies Harbor City Capital Corp. and Harbor City Digital Ventures, Inc. Based out of Melbourne, FL, Maroney advertises unrealistic returns on investments that, in fact, do not exist. The Securities Exchange Commission has no records of any of Maroney’s companies or the bonds he offers; the Alabama Securities Commission does not have any records either. Maroney is not registered as a broker or investment advisor in the State of Alabama. Maroney advertised an 18% annual return on investment, along with other fraudulent investments.

What is most surprising about this case is that despite the Cease and Desist Order, Harbor City Capital’s website is still live and soliciting investments. The website currently lists a bond titled HCCF-4.  HCCF-4 guarantees a 12% return on the one-year bond with no risk to the principal. Harbor City Capital Corp. is not listed in Sunbiz as a Florida entity.  The website states, “Pocket 12% Yield With ZERO Risk To Your Principal.”  So where are our regulators when we need them?

If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

 

Stockbroker Exploits Elderly WWII Veteran

On June 12, 2020, the SEC filed a Complaint alleging multiple instances of fraud against Frederick M. Stow, a Tennessee-based broker at Raymond James & Associates, Inc. The SEC alleges that Stow stole over $900,000 from one of his clients, a World War II. The elder exploitation victim was Stow’s client for nearly 40 years, electing to remain with Stow whenever Stow relocated to another firm. Between October 2015 and April 2019, Stow sold securities in his client’s IRA and subsequently forged wire transfer Letters of Authorization in order to transfer the sales proceeds into his own account. The client passed away in March 2019 at the age of 98. Following his passing, the executor of the estate repeatedly requested explanations for the suspicious wire transfers. Stow then confessed his theft to his supervisor and was terminated by Raymond James. The SEC also alleges that Stow stole $32,000 from a separate client in April 2019.

Elder exploitation of this nature is not uncommon in the financial services industry.  Numerous stockbrokers have been imprisoned as a result of their greed.  It is only because of an estate executor’s due diligence that this theft was discovered.  For ideas on how you can help your friends or relatives avoid being a victim of this type of crime, feel free to call me.

If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

COVID-19 PUMP AND DUMP

On June 9, 2020, the SEC filed a Complaint alleging that Jason C. Nielsen operated a “pump and dump” scheme, thereby defrauding other investors. Nielsen knowingly posted false statements on investment forums in regard to the stock of a biotechnology company, Arrayit Corporation. A “pump and dump” scheme is when an investor buys stock in a given company and subsequently lies about the company’s affairs in order to “pump” up the value of his investment, and then proceeds to “dump” his shares after their value has gone up. Nielsen allegedly made approximately $137,000 from this scheme.

Nielsen, through his posts on investment forums, proclaimed that Arrayit had developed a COVID-19 blood test and that the test had gotten emergency approval from the FDA. Neither was true. Nielsen owned about 10% of Arrayit’s common stock. His false and/or misleading claims defrauded investors. On top of this, Nielsen also allegedly utilized a tactic known as “spoofing,” where an investor places orders for large amounts of a company’s stock and then cancels them, creating the appearance of an increase in demand.

The SEC charged Nielsen with violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions, civil money penalties, a penny stock bar, and disgorgement with prejudgment interest.

If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

SEC Awards Record Payout of Nearly $50 Million to Whistleblower

On June 4, 2020 the SEC announced a nearly $50 million whistleblower award to an individual who alerted the agency of firsthand observations of misconduct by a company that resulted in a successful enforcement action that returned a significant amount of money to harmed investors.  This is the largest amount ever awarded to one individual under the SEC’s whistleblower program.

The Securities and Exchange Commission has awarded more than $500 million to whistleblowers since the inception of the agency’s whistleblower program in 2011.   This award is the largest individual whistleblower award since the inauguration of the program.   The whistleblower program was established by Congress to incentivize whistleblowers with specific, timely and credible information about federal securities laws violations to report to the SEC.  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.   Whistleblowers have proven to be a critical tool in the enforcement arsenal to combat fraud and protect investors.  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 Shuts Down Fraudulent Investment Adviser Targeting Senior Citizens

On May 22nd, 2020, the Securities and Exchange Commission issued a press release detailing a Ponzi scheme designed to target the elderly. The SEC filed an emergency action and subsequently obtained a temporary restraining order and asset freeze against Paul Horton Smith Sr. and his various companies, which he used to organize the scheme. Smith Sr., according to the SEC’s complaint, offered and sold securities through his company Northstar Communications LLC.

Smith Sr. allegedly used his other companies to sponsor events, such as financial workshops and free-meal seminars, at which he would promise investors, often elderly people, guaranteed annual interest payments of anywhere from three percent to ten and a half percent if they invested in so-called private annuity contracts.” However, Smith Sr. did not invest the funds he raised in any securities. Instead, he would use those funds to pay returns to previous investors. This is a classic Ponzi scheme.

Smith Sr. and his entities stand accused of raising over $5.6 million from at least thirty-five investors and then paying $5.2 million to those investors in the form of interest payments or principal reward. He and his companies have been charged with violating the antifraud provisions of the federal securities laws. The complaint seeks civil penalties, injunctions, and the return of ill-gotten gains plus interest.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

 

 

SEC Charges Three Individuals for Offering and Selling Fraudulent Oil and Gas Investment

On May 18, 2020 the Securities and Exchange Commission sued three Texas residents who used deceptive offering materials and promotional videos to sell $2.7 million in fraudulent oil and gas investments.  Defendants Paul R. Montgomery, Jr., Michael D. Fisher, and James H. Willingham, Jr. were charged after the SEC found that approximately 15 investors lost about $2.7 million by investing in joint venture interests in two oil and gas projects.  Defendants lured investors with, among other things, promises of 32% investment returns, as well as representations about Montgomery’s expertise and qualification in the oil and gas exploration industry.

The complaint alleges Defendants never drilled or reworked a single well for the projects.  Defendants misrepresented and/or omitted numerous material facts to investors that were fundamental to the nature and risks of the investment offerings.  Defendants distributed written offering materials in which they promised to use investor funds only for specified purposes, instead they misappropriated investor funds, spending hundreds of thousands of dollars for a number of uses not permitted in the offering documents, such as undisclosed commissions, and payments to Montgomery and Willingham.   In the end, investors suffered a complete loss of their funds.

In the interest of protecting the public from any further fraudulent activity and harm, the SEC brought this action against Defendants.  The Commission charged Montgomery and Fisher with aiding and abetting Willingham’s violations of the charged anti-fraud provisions.  Additionally, the SEC is seeking disgorgement of ill-gotten gains plus interest, civil penalties, and injunctive relief.  Willingham has agreed to be enjoined against future violations of the charged provisions, and to pay disgorgement, prejudgment interest, and civil penalty, the amounts of which will be determined by the court upon a motion filed by the SEC.

 

Morgan Stanley Smith Barney Agrees to Pay a $5 Million Penalty and Create a Fund to Benefit Harmed Investors

On May 12, 2020 the SEC announced that Morgan Stanley Smith Barney (MSSB) has agreed to settled charges that it provided misleading information to clients in its retail wrap fee programs regarding trade execution services and transaction costs.  It also agreed to pay a $5 million penalty that will be distributed to harmed investors.

The SEC issued a Cease and Desist Order in reference to MSSB’s marketing and client communications associated with the services rendered and costs incurred in MSSB’ retail wrap fee programs, which to some clients were misleading.  Wrap fee programs offer accounts in which clients pay an asset-based “wrap fee” that covers investment advice and brokerage services, including trade execution.  According to the investigation, from at least October 2012 until June 2017,  MSSB marketed its wrap fee account as offering clients professional investment advice, trade execution, and other services within a “transparent” fee structure; giving the impression that wrap fee clients were not likely to incur additional trade execution costs.  However, the Order alleges that MSSB had knowledge that some of its managers routinely directed wrap fee clients’ trades to third party broker-dealers for execution, which in turn resulted in additional transaction fees, these costs were embedded into the price of the security and not separately disclosed to clients.   Consequently, MSSB clients were unaware that they regularly paid execution costs in addition to MSSB’s wrap fee and in some instances, they incurred in transaction-based charges.  As a result, certain MSSB clients lacked complete and accurate information needed to assess the value of the services received in exchange for the wrap fee paid to MSSB and the costs associated with their accounts.

Without admitting or denying the SEC findings, Morgan Stanley Smith Barney consented to the SEC’s Order, which finds that the firm violated provisions of the Investment Advisers Act of 1940, imposes a $5 million penalty, and includes a censure and a cease-and-desist order.  The order also creates a Fair Fund to distribute the penalty paid by MSSB to harmed investors.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

SEC Obtains Judgement Against Two Florida Men in Ponzi Scheme Action

On May 11, 2020 the US District Court for the Southern District of Florida entered final judgments against Neil Burkholz and Frank Bianco for knowingly operating a Ponzi scheme.  Neil Burkholz, age 82, is a resident of Boca Raton, Florida.  He is the founder and co-CEO of Palm Management, and co-Founder and Manager of Shore Management.  Frank Bianco, age 70, is a resident of Pembroke Pines, Florida.   He is co-CEO of Palm Management, and co-Founder and Manager of Shore Management.  Both Defendants opened bank and brokerage accounts for the entities and their investment funds.  They are the only signatories on the bank accounts, and they exercised exclusive trading authority over the brokerage accounts.

The alleged fraudulent investment scheme raised more than $6 million from at least 55 investors, many of whom are senior citizens.  According to the complaint, to solicit and retain investors, Defendants falsely represented that they were advisers and fiduciaries who would profitably manage investor assets, when in reality, through at least two investment management companies, Defendants knowingly misappropriated investor assets by diverting them to pay other investors and by transferring funds to themselves and their spouses.    The SEC’s complaint alleged that Burkholz, Bianco, and their companies: Palm Financial Management and Shore Management Systems, solicited investors by falsely representing that their proprietary options trading strategies were highly profitable.  In effect, per the complaint, the defendants invested less than half of investor funds and those investments resulted in near-total losses.  Additionally, they misappropriated the remaining funds by using them to repay other investors and by transferring approximately $880,000 of investor funds to Burkholz, Bianco, and their spouses for personal use.  To conceal their misappropriation and trading losses, Defendants delivered false reports to investors giving the false impression they were generating positive returns.  In sum, Defendants were managing and operating a Ponzi scheme.

Without admitting or denying the allegations in the SEC Complaint, Burkholz and Bianco consented to the entry of a final judgement permanently enjoining them from violating antifraud provisions of the Securities Exchange Act and ordered them to disgorge $873,577 combined, and $1,841,650 in civil penalties.  Further, Bianco’s wife Suzanne Bianco, who the SEC named as a relief defendant, consented to the entry of a final judgment ordering her to disgorge$49,751 on a joint and several basis with Bianco, representing the amount of investor funds Bianco paid her, plus prejudgment interest.  Additionally, the Court ordered over $1.2 million in disgorgement and prejudgment interest against Palm Management and Shore Management.   After the SEC receives approval from the Court, it plans to establish a fair fund to distribute money received from defendants to harmed investors.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

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.