Category Archives: SEC News

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.

On May 22^nd, 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 6^th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

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.

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 6^th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

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.

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.

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. 

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.

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.

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.