Category Archives: SEC News

On September 17, 2015, the Securities and Exchange Commission announced that it was charging four former Penson Financial Services officials for their roles in a series of accounting and disclosure failures related to decisions to extend credit to certain customers beyond what is allowed under the federal securities laws.

Through the SEC’s investigation, it was found that Penson Financial Services provided customers nearly $100 million in margin loans secured mostly by risky, unrated municipal bonds, including some funding a horse racetrack in Texas. The loans to the customers, including the ones used to fund the racetrack’s operations, became impaired in the wake of the financial crisis. Instead of following industry standards and liquidating the collateral, accounting properly for the loan losses and disclosing the situation to its investors, Penson officials extended more loans to the same customers in hopes that their financial condition would improve and they could pay off the loans. By doing so, Penson violated the federal margin regulations. Penson’s eventual accounting and disclosures of the loan losses that reached $60 million contributed to the firm’s demise and bankruptcy filing in 2013.

The Director of the SEC’s Division of Enforcement said in a statement “Penson took on extraordinary risks as a broker-dealer by making margin loans to certain customers backed by speculative collateral…When these loans became impaired, Penson’s leadership improperly placed more of Penson’s critical capital at risk to bail out these customers instead of timely recording the losses and disclosing the truth about the loans to investors.” The Penson officials involved in the loans agreed to settle the charges in administrative proceedings without admitting or denying the SEC’s findings.

On September 9, 2015, the Securities and Exchange Commission announced that they were bringing fraud charges against a Maryland-based financial services firm and its founder/CEO. Dawn J. Bennett, personally, and as CEO of the Bennett Group Financial Services, allegedly made material misstatements and omissions between 2009–2011. In an effort to attract new clients to her fledgling investment advisory business, Bennett lured new clients with claims of industry success and impressive investment returns.

Bennett and her firm knowingly made misstatements about their managed assets to three media organizations. As a result, the media organizations ranked Bennett fifth in the category of “top 100 Women Financial Advisors” and second in its listing of the “2011 Top Advisor” in Washington DC. Bennett used these distinctions to publicize her success to existing and prospective clients. In 2010, the Bennett Group paid to appear in a weekly radio show on an AM radio station in the Washington D.C. area. Bennett hosted the radio show called Financial Myth Busting with Dawn Bennett. She also determined all of the show’s content. Bennett used this platform to falsely claim that she and the Bennett Group managed assets ranging from $1.5 billion to more than $2 billion. In reality Bennett and the Bennett Group did not provide any form of management for assets exceeding approximately $407 million. Additionally, Bennett touted the Bennett Group’s investment returns and performance during the radio show’s broadcast. However, she failed to disclose that the returns were calculated for a model portfolio, in which only a small portion of her customers participated. The same fraudulent claims were published on the radio show’s Facebook page.

During the SEC’s investigation, Bennett and her firm made additional false statements in an effort to substantiate their prior fraudulent claims about the amount of managed assets. Bennett and her firm falsely asserted that they gave advice about short term cash management to three corporate clients regarding more than $1.5 billion in corporate assets. In reality, they never provided such advice. The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate. The Director of the SEC’s Philadelphia Regional office said “The investing public is entitled to a level of confidence that information they receive about brokerage and advisory services is accurate, and this case shows that so-called financial experts on the radio are often merely advertisers who may not be doing so truthfully.”

The Securities and Exchange Commission announced on August 17, 2015 that two Citigroup affiliates, Citigroup Global Markets, Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI), agreed to bear all costs of distributing $180 million in settlement funds to harmed investors.
The Citigroup affiliates agreed to pay nearly $180 million to settle charges that they defrauded investors in two hedge funds by making false and misleading representations. The companies, through their financial advisors, misrepresented the funds by selling them as safe, low-risk, and suitable for traditional bond investors. The funds later crumbled and eventually collapsed during the financial crisis.
An SEC investigation found that the Citigroup affiliates made false and misleading representations to investors in the ASTA/MAT funds and the Falcon funds, which collectively raised nearly $3 billion in capital from approximately 4,000 investors before collapsing. Financial Advisors failed to disclose the very real risks of the funds. Many of the misleading representations made by Citigroup employees were in conflict with disclosures made in marketing documents and written materials provided to investors. Furthermore, CAI accepted nearly $110 million in additional investments and continued to assure investors that the funds were low risk, well capitalized investments with adequate liquidity, even as the funds began to collapse.
Andrew Ceresney, the Director of the SEC’s Enforcement Division said “Firms cannot insulate themselves from liability for their employees’ misrepresentations by invoking the fine print contained in written disclosures,” he added “Advisers at these Citigroup affiliates were supposed to be looking out for investors’ best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster.”
CGMI and CAI consented to the SEC order without admitting or denying the findings.

The Securities and Exchange Commission announced today, that a company insider, whose information was critical to the SEC to crack a complex fraud investigation, received a multi-million dollar payout. The whistleblower award of more than $3 million is the third highest award since the 2011 inception of the SEC’s whistleblower program.
Whistleblowers who provide the SEC with unique and useful information that contributes to a successful enforcement action are eligible for awards that can range from 10 percent to 30 percent of the money collected when financial sanctions exceed $1 million. By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.
In reference to today’s award, Sean X. McKessy, Chief of the Office of the Whistleblower, said “The award made today is another testament to the agency’s commitment to reward those who provide high-quality information that leads to successful enforcement actions and related actions,” He added, “Our office continues to receive thousands of whistleblower tips each year. When those tips bear fruit, those individuals, like today’s whistleblower, may receive significant financial awards.”
“Insiders may hold the key to helping our investigators unlock intricate fraudulent schemes,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. “By providing significant financial incentives for people to come forward, the SEC’s whistleblower program continues to be profoundly effective in helping us protect investors and hold wrongdoers accountable.” As for this particular case, the whistleblower’s specific and detailed information comprehensively laid out the fraudulent scheme which otherwise would have been very difficult for investigators to detect. The whistleblower’s initial tip also led to related actions that increased the whistleblower’s award.
If you believe you have information evidencing violations of the federal securities laws, please contact David A. Weintraub, P.A., 800.718.1422

On November 18, 2014, the SEC announced that it had charged an unregistered broker living outside Tampa, Florida, with stealing investor funds as part of a fraudulent day trading scheme.

The SEC alleged that Albert J. Scipione and his business partner solicited investors to establish accounts at their company called Traders Café for the purposes of day trading, which entails the rapid buying and selling of stocks throughout the day in hope that the stock values continue climbing or falling for the seconds to minutes they own them so they can lock in quick profits.  Scipione touted Traders Café’s software trading platform and made a series of false misrepresentations to investors about low commissions and fees, high trading leverage, and safety of their assets.  More than $500,000 was raised from investors who were assured that funds invested with Traders Café would be segregated and used only for day trading or other specific business purposes.  However, many customers encountered technical service problems that prevented them from trading at all, and Scipione and his business partner squandered nearly all of the money in investor accounts for their personal use.  Meanwhile, Traders Café was never registered with the SEC as a broker-dealer as required under the federal securities laws.

In a parallel action, the U.S. Attorney’s Office for the Middle District of Florida announced that Scipione has pleaded guilty to criminal charges.

According to the SEC’s complaint filed against Scipione in federal court in Tampa, customers across the country deposited approximately $367,000 with Traders Café from December 2012 to October 2013 with the intention of opening day trading accounts.  Traders Café also received approximately $150,000 from an investor who invested directly in Traders Café’s business. Customers encountered problems with Traders Café from the outset, and many of them cancelled their accounts and requested refunds of their remaining account balances.  Scipione and Ionno tried to cover up their fraudulent scheme by offering excuses and delays for why customers could not get refunds.  Eventually less than $1,200 remained in Traders Café’s accounts primarily due to the repeated misuse of investor funds by Scipione.

The SEC’s complaint against Scipione alleged that he violated Section 17(a) of the Securities Act of 1933 as well as Section 15(a) and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC is seeking disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief to enjoin Scipione from future violations of the federal securities laws.

On November 3, 2014, the SEC announced that it hadsanctioned 13 firms for violating a rule primarily designed to protect retail investors in the municipal securities market.

All municipal bond offerings include a “minimum denomination” that establishes the smallest amount of the bonds that a dealer firm is allowed to sell an investor in a single transaction.  Municipal issuers often set high minimum denomination amounts for so-called “junk bonds” that have a higher default risk that may make the investments inappropriate for retail investors.  Because retail investors tend to purchase securities in smaller amounts, this minimum denomination standard helps ensure that dealer firms sell high-risk securities only to investors who are capable of making sizeable investments and more prepared to bear the higher risk.

In its surveillance of trading in the municipal bond market, the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit detected improper sales below a $100,000 minimum denomination set in a $3.5 billion offering of junk bonds by the Commonwealth of Puerto Rico earlier this year.  The SEC’s subsequent investigation identified a total of 66 occasions when dealer firms sold the Puerto Rico bonds to investors in amounts below $100,000.  The agency instituted administrative proceedings against the firms behind those improper sales: Charles Schwab & Co., Hapoalim Securities USA, Interactive Brokers LLC, Investment Professionals Inc., J.P. Morgan Securities, Lebenthal & Co., National Securities Corporation, Oppenheimer & Co., Riedl First Securities Co. of Kansas, Stifel Nicolaus & Co., TD Ameritrade, UBS Financial Services, and Wedbush Securities.

The enforcement actions are the SEC’s first under Municipal Securities Rulemaking Board (MSRB) Rule G-15(f), which establishes the minimum denomination requirement.  Each firm agreed to settle the SEC’s charges and pay penalties ranging from $54,000 to $130,000.

The SEC’s orders against the 13 dealers find that in addition to violating MSRB Rule G-15(f) by executing sales below the minimum denomination, they violated Section 15B(c)(1) of the Securities Exchange Act of 1934, which prohibits violations of any MSRB rule.  Without admitting or denying the findings, each of the firms agreed to be censured.  They also agreed to review their policies and procedures and make any changes that are necessary to ensure proper compliance with MSRB Rule G-15(f).

It was unclear from the SEC’s announcement whether customers had initiated FINRA arbitrations or any other types of adversarial proceedings.  If you believe that you have suffered losses as a result of improper sales of Puerto Rico bonds, you may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324.  By phone:  954.693.7577 or 800.718.1422

On August 14, 2014, the SEC announced that they had charged New York based brokerage firm Linkbrokers Derivatives LLC for unlawfully taking secret profits of more than $18 million from customers by adding hidden markups and markdowns to their trades.

According to the SEC’s order instituting administrative proceedings, certain representatives on Linkbrokers’ cash equity desk defrauded customers by purporting to charge them very low commission fees, but in reality extracting fees that in some cases were more than 1,000 percent greater than represented.  These brokers hid the true size of the fees they were collecting by misrepresenting the price at which they had bought or sold securities on behalf of their customers.  The scheme was difficult for customers to detect because the brokers charged the markups and markdowns during times of market volatility in order to conceal the false prices they were reporting to customers.

Linkbrokers has agreed to pay $14 million to settle the SEC’s charges. The SEC previously charged four former brokers on the cash equities desk at Linkbrokers, and three of them later agreed to settle those charges by consenting to judgments ordering more than $4 million in disgorgement plus interest.

According to the SEC’s order instituting a settled administrative proceeding against Linkbrokers, the scheme occurred from at least 2005 to February 2009 and involved more than 36,000 transactions.  The surreptitiously embedded markups and markdowns ranged from a few dollars to $228,000.  Linkbrokers secured additional illicit profits by stealing a portion of customers’ trades.  When customers placed limit orders seeking to purchase or sell shares at a specified maximum or minimum price, the brokers filled the orders at the customers’ limit price but withheld that information from the customers.  Instead, they monitored the movement in the price of the securities and purchased or sold portions of these positions back to the market, keeping the profit for the firm.  The brokers then falsely reported to the customers that they could not fill the order at the limit price.

The SEC’s order, to which Linkbrokers consented without admitting or denying the findings, found that the firm violated Section 15(c)(1) of the Securities Exchange Act of 1934 and requires Linkbrokers to pay $14 million in disgorgement.  Linkbrokers ceased acting as a broker-dealer in April 2013 and will withdraw its registration.

On August 1, 2014, the SEC announced that it has obtained a final judgment in federal court requiring a Richmond, Virginia based financial services holding company, a subsidiary brokerage firm, and their CEO to pay nearly $70 million as the outcome of a trial that found them liable for fraud.

The SEC’s complaint filed against AIC Inc., Community Bankers Securities LLC, and Nicholas D. Skaltsounis alleged that they conducted an offering fraud while selling AIC promissory notes and stock to numerous investors across multiple states, many of whom were elderly or unsophisticated brokerage customers.  They misrepresented and omitted material information about the investments when pitching them to investors, including the safety and risk associated with the investments, the rates of return, and how the proceeds would be used by AIC.  In reality, AIC and its subsidiaries were never profitable, and Skaltsounis and the companies used money raised from new investors to pay back principal and returns to existing investors.

The court imposed permanent injunctions against AIC, Community Bankers Securities, and Skaltsounis for future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

On July 31, 2014, the SEC announced that it had charged a broker based in Roanoke, Virginia, with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.

According to the SEC’s complaint, Donna Jessee Tucker siphoned $730,289 from elderly customers and used the money to pay for such personal expenses as vacations, vehicles, clothes, and a country club membership.  Tucker ensured that the customers received their monthly account statements electronically, knowing that they were unable or unwilling to access their statements in that format.  The SEC further alleged that Tucker engaged in unauthorized trading and other financial transactions while making misrepresentations to customers about their investment accounts and forging brokerage, banking, and other documents.

In a parallel action, the U.S. Attorney’s Office for the Western District of Virginia has announced criminal charges against Tucker.

Tucker has agreed to settle the SEC’s charges and disgorge the $730,289 in ill-gotten gains either in the criminal case or the civil case.  She consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The settlement is subject to court approval.

On July 24, 2014, the SEC announced it had charged a Florida-based transfer agent and its owner with defrauding investors by using aggressive boiler room tactics to peddle worthless securities with promises of high returns or discounted prices.

Transfer agents are typically used by publicly-traded companies to keep track of the individuals and entities that own their stocks and bonds. The SEC alleged that Cecil Franklin Speight, whose firm International Stock Transfer Inc. (IST) was a registered transfer agent, abused the transfer agent function by creating and issuing fake securities certificates to both U.S. and international investors. While investors collectively sent in millions of dollars thinking they were purchasing high-yield investments and discounted stock, they ended up receiving counterfeit certificates that Speight and IST fooled them into thinking were legitimate.

Speight and IST agreed to settle the SEC’s charges. Speight will be barred from serving as an officer or director of a public company and from participating in any penny stock offering. The court will determine monetary sanctions at a later date.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Speight’s scheme included multiple securities, including the issuance of fake foreign bond certificates and stock certificates for a publicly-traded microcap company with no connection to IST. To bolster the appearance of the safety of the investments and conceal from investors how their money was really being spent, Speight enlisted two attorneys to receive investment funds into their own bank accounts. From there, the money was transferred to IST. Instead of making its way to any issuers, however, IST and Speight spent investors’ money almost as quickly as it came in. They used it to pay Speight’s personal expenses, and in Ponzi scheme fashion new investor money was used to fund interest payments to prior foreign bond investors. In all, Speight and IST stole more than $3.3 million from at least 70 investors.

The SEC’s complaint charged Speight and IST with violating the antifraud provisions of the securities laws, including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The complaint charged IST with violating the transfer agent books and records requirements of Section 17(a)(3) of the Exchange Act, and Speight with aiding and abetting such violations. Speight and IST have consented to the entry of judgments permanently enjoining them from future securities law violations and requiring them to pay disgorgement of all ill-gotten gains plus prejudgment interest and penalties as determined by the court, which must approve the settlement.