August 2022 SEC Updates

  1. On August 29, 2022, the SEC charged Gregory Lindberg, Christopher Herwig and Standard Advisory Services Limited, a registered investment adviser, for defrauding clients out of more than $75 million through undisclosed transactions that benefited themselves and their companies. Lindberg and Herwig through Standard Advisory, breached their fiduciary duties to their advisory clients by fraudulently causing them to engage in undisclosed related-party transactions that were not in the best interest of their clients. Lindberg and Herwig misappropriated more than $57 million in client funds and Standard Advisory collected more than $21.4 million in advisory fees generated in connection with these schemes. Lindberg orchestrated the schemes through complex investment structures and a web of affiliate companies and used the proceeds to pay themselves or to divert the funds to Lindberg’s other businesses. The matter is being litigated.
  1. On August 29, 2022, the SEC charged Lee Bressler, the portfolio manager of Carbon Master Fund, L.P., an Oklahoma City hedge fund, with defrauding the fund and its investors by making undisclosed trades that caused the fund to suffer a complete loss of investor capital totaling more than $10 million.  Bressler represented to investors that the fund followed a conservative investment strategy emphasizing capital preservation and low risk. Bressler engaged in unauthorized high-risk trading in two undisclosed accounts that were margined against the fund’s assets. This trading not only violated the fund’s stated investment mandate but also exposed the fund’s assets to extreme risk of loss. Bressler’s unauthorized trading caused the complete loss of investor capital in the fund. Bressler was barred and was ordered to pay a civil penalty of $184,000.
  1. On August 29, 2022, the SEC instituted administrative proceedings against Jonathan Cooke, a former broker, for fraudulently inducing federal employees to rollover significant funds from their federal retirement accounts, referred to as Thrift Savings Plan accounts, into variable annuity products.  The variable annuities charged significantly higher fees and provided Cooke with substantial commissions. Cooke agreed to pay disgorgement of $396,409, a civil penalty of $103,591, and accept a barred.
  1. On August 29, 2022, the SEC instituted administrative proceedings against Worldwide Markets, Ltd. (WWM), an online trading platform for U.S.-based equities and registered broker-dealer, for soliciting investments from retail customers using a website and other solicitation materials that offered customers the ability to “own and trade” stocks and options. In reality, however, WWM’s customers’ funds were not used to trade stocks; instead, WWM sold those customers another type of security, a derivative called contracts for difference (“CFDs”) based on the value of single U.S. equities. WWM then commingled the money customers deposited at WWM and used it to fund WWM’s operations. Additionally, because the values of the CFDs that WWM sold to its customers were tied to the values of underlying securities, they were security-based swaps, which must be (but were not) registered with the Commission and must be (but were not) executed on a registered national exchange.  WWM was barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
  1. On August 25, 2022, the SEC instituted administrative proceedings against Swapnil Rege. Rege misused and misappropriated client funds, made false oral and written statements to clients indicating that client funds were fully invested and earning returns and otherwise engaged in conduct which operated as a fraud and deceit on his clients. Rege failed to disclose to clients that a 2019 SEC order barred him from association with any investment adviser with a right to reapply after three years. Rege was barred.
  1. On August 17, 2022, the SEC charged Christopher Bentley and Bellatorum Resources, LLC, an unregistered investment adviser, for engaging in myriad fraudulent acts that resulted in an almost complete loss of over $30 million invested in three private funds: Bellatorum Land & Minerals, LP; Bellatorum Phalanx Investments, LP; and Sentinel Energy Investments, LP. Bentley raised $31.5 million from investors to purchase and sell mineral rights through the funds, but Bentley used his control over Bellatorum to secretly siphon money from the funds while concealing their poor results. Bentley perpetrated his scheme by repeatedly manipulating the funds’ transactions, including purchasing inflated mineral rights from an affiliated entity that he secretly controlled, purchasing mineral rights from third parties at inflated prices and then misappropriating the extra proceeds for himself and Bellatorum, manipulating sales transactions to generate fake profits and trigger distributions to Bellatorum and altering documents to deceive two of the funds’ auditors. Bentley kept his scheme afloat by secretly pledging most of the funds’ mineral rights as collateral for an improper loan. When Bentley failed to repay the loan, the lender took most of the funds’ investments, which triggered massive losses for the funds and their investors. To resolve the SEC’s charges, Bentley and Bellatorum agreed to the entry of a judgment that permanently enjoins them from future violations of these provisions of the federal securities laws, bars Bentley and orders them to pay disgorgement, prejudgment interest, and civil penalties in amounts that will be determined by the court upon future motion of the SEC. In a parallel action, the U.S. Attorney’s Office for the Southern District of Texas filed related criminal charges against Bentley.
  1. On August 16, 2022, the SEC instituted administrative proceedings against Conrad Normann, a former day trader, for carrying out a manipulative securities trading scheme that involved placing and then, seconds before market close, canceling “Closing D Orders,” thus fraudulently altering NYSE’s closing auction order imbalance messages – electronic messages published by the NYSE to market participants during the last ten minutes of trading and reflecting, among other things, the balance of selling and buying interest for the NYSE’s closing auction in a particular security. Normann would cancel his non-bona fide Closing D Order, removing the false appearance of supply or demand that he had injected into the market. Normann would then close out his just-established long or short position in the closing auction, most of the time realizing a profit from his manipulative conduct. Normann reaped ill-gotten gains of over $94,000 from this scheme. Normann was barred.
  1. On August 16, 2022, the SEC instituted administrative proceedings against Gregory Blotnick and Brattle Street Capital, LLC (“BSC”), an unregistered investment adviser. Blotnick and BSC raised approximately $3 million from 47 investors in BSC Opportunistic Equity, LP (“the Fund”). Blotnick and BSC solicited investors with false and misleading statements, including misstatements about the profitability of the Fund and the fund administrator. Blotnick and BSC engaged in trading that was inconsistent with the trading strategy described in the Fund’s private placement memorandum. Blotnick and BSC’s trading resulted in losses of nearly all of the Fund’s assets, which Blotnick and BSC hid through inaccurate account statements misrepresenting the Fund’s performance. Blotnick and BSC also fraudulently obtained Paycheck Protection Program loans which they deposited in the Fund’s account and then lost through similar trading. Blotnick pled guilty and been sentenced to prison in parallel state and federal criminal matters. BSC was censured while Blotnick was barred.
  1. On August 11, 2022, the SEC instituted administrative proceedings against Ross Barish, a registered representative at a broker-dealer. Barish engaged in a high-cost, in-and-out trading strategy in customer accounts without conducting reasonable due diligence to determine whether the trading strategy could deliver even a minimal profit for his customers. Barish also engaged in widespread unauthorized trading in customer accounts. Barish’s strategy resulted in over $800,000 in losses to customers, while netting Barish and his firm over $400,000 in commissions.  Barish concealed material information from and made material misrepresentations to his customers, and engaged in unauthorized trading in customer accounts. Barish was barred.
  1. On August 11, 2022, the SEC instituted administrative proceedings against a convertible note dealer, Crown Bridge Partners, LLC, and its managing members, Soheil and Sepas Ahdoot for failing to register with the SEC as securities dealers. As part of the settlement, the Ahdoots and Crown Bridge agreed to pay more than $9 million in monetary relief and to surrender or cancel securities of 82 different issuers they allegedly obtained from their unregistered dealer activity.  Crown Bridge through the Ahdoots operated as an unregistered dealer through its business of buying convertible notes from penny stock issuers, converting those notes into stock at a discount from the prevailing market price and selling the newly issued shares into the public markets. Crown Bridge funded approximately 250 notes with approximately 150 issuers and converted the notes into around 35 billion shares of newly issued common stock which it then sold into the market. Neither Crown Bridge nor the Ahdoots were registered with the Commission as dealers nor were they associated with a registered dealer. Crown Bridge was barred.
  1. On August 10, 2022, the SEC instituted administrative proceedings against IFP Advisors, LLC, a registered investment adviser, and its former investment adviser representative, Richard Keith Robertson.  The parties agreed to settle charges relating to Robertson’s multi-year cherry-picking scheme. Cherry-picking is the fraudulent practice of preferentially allocating profitable trades or failing to allocate unprofitable trades to an adviser’s personal accounts at the expense of the adviser’s client accounts. The SEC’s orders found that Robertson disproportionately allocated profitable trades to his personal and family accounts, and disproportionately allocated unprofitable trades to certain of his clients’ accounts. According to the orders, the likelihood of these profitable trades being randomly allocated to Robertson’s personal and family accounts is nearly zero.  Regarding IFP, it failed reasonably to supervise Robertson and failed to implement policies and procedures reasonably designed to prevent unfair trade allocations. The order found that IFP never conducted a branch office audit of Robertson during his eight years as an IFP representative and never reviewed his trading as required by its own compliance manuals. The order also found that during the relevant period, IFP’s Form ADV contained misleading statements that it had safeguards in place to prevent representatives from placing their own interests ahead of those of IFP’s advisory clients.  Robertson agreed to pay disgorgement of $592,437, prejudgment interest of $28,173, and a penalty of $300,000. Robertson also consented to a permanent associational bar, investment company bar, and penny stock bar.  IFP consented to the entry of a cease-and-desist order, a censure, a penalty of $400,000, and an undertaking to retain an independent compliance consultant.
  1. On August 25, 2022, the SEC charged Womack Investment Advisers, Inc. (“WIA”), a registered investment adviser, and GreneCo, LLC, Gene Larson, Gregory Womack, with securities law violations relating to unregistered offerings of interests in conservation easement investments. GreneCo and its owners, Larson and Womack, raised approximately $23 million from more than 250 investors through four unregistered securities offerings involving conservation easements.. Womack and WIA failed to disclose compensation received from WIA clients who invested in GreneCo’s offerings. Womack received approximately $6 million in management fees from the GreneCo offerings, a fact not disclosed to the eight WIA clients who invested in the offerings. The complaint also alleges that WIA’s annual disclosures falsely stated that it did not receive any compensation from GreneCo when, in fact, it had received $160,000 in such compensation, partly attributable to investments by WIA clients. These fees and compensation created conflicts of interest that Womack and WIA, as fiduciaries, were required to disclose to their clients.  GreneCo, Larson, and Womack agreed to be permanently enjoined from violating these provisions and to pay civil penalties of $414,364, $41,440, and $186,471, respectively. Womack also agreed to pay disgorgement of $236,349 plus prejudgment interest. And, WIA agreed to pay disgorgement of $160,000 plus prejudgment interest and a civil penalty of $517,955.
  1. On August 9, 2022, the SEC instituted administrative proceedings against Michelle Maccio, manager, chief compliance officer, control person, and sole investment adviser representative of Maccio Financial, LLC, (“MFL”). Maccio withdrew more than $1,300,000 from a private fund managed by MFL to cover her personal expenses. After Maccio started withdrawing money from the fund, she issued the fund a $500,000 promissory note, but was unable to make repayments to the fund as required by the promissory note. Maccio never increased the amount of the promissory note to reflect the larger amount she withdrew from the fund. Maccio did not disclose to investors that she could issue a promissory note or borrow money from the fund. The order also found that Maccio failed to disclose in MFL’s Forms ADV Maccio was barred.
  1. On August 9, 2022, the SEC instituted administrative proceedings against Dustin Shafer, previously associated with SEC-registered broker-dealers and investment advisers as a registered representative and an investment adviser representative.  Shafer borrowed a total of $58,678 through four personal loans which she paid from her personal checking account. Shafer signed a promissory note evidencing the three loans, but the note did not provide for security, interest, or a repayment schedule. Shafer gave the customer a check for $10,000 postdated to April 15, 2020, and advised her not to attempt to cash it until after the post date. Shafer closed his bank account before the customer presented the check for payment. Shafer had not repaid any of the loans. Shafer continued to manage the customer’s accounts as a broker and executed many buys and sells in her account.  Shafer was barred.
  1. On August 4, 2022, the SEC instituted administrative proceedings against Kevin Gillespie, chief executive officer of Arias Intel Corp. (f/k/a first Harvest Corp.) (“ASNT”).  Gillespie was also a registered representative associated with broker-dealers registered with the SEC. Gillespie participated in a scheme to defraud investors in ASNT’s common stock. Gillespie caused ASNT to issue hundreds of thousands of unregistered shares of its common stock to other scheme participants who planned to sell the stock during an undisclosed promotional campaign. Gillespie conspired with four individuals to commit securities fraud by arranging for the transfer of significant blocks of ASNT stock to a co-conspirator’s brokerage accounts, making misrepresentations to ASNT’s transfer agent and planning to cause ASNT to issue press releases for the purpose of artificially inflating ASNT’s stock’s share price. Gillespie was barred.
  1. On August 3, 2022, the SEC instituted administrative proceedings against Deccan Value Investors LP, a private fund investment adviser, and Vinit Bodas, Deccan’s founder and chief investment officer, for Deccan’s breaches of its fiduciary duties when handling redemptions for two university endowments. Deccan manages assets for some of the largest educational endowments in the world. Deccan Value Investors LP failed to satisfy its fiduciary duties by favoring non-redeeming clients and investors when handling full redemptions. These redemptions together totaled approximately $566 million or nearly 18.5% of Deccan’s more than $3 billion in assets under management at the time.  The order finds that without full and fair disclosure to either university, Deccan did not seek to liquidate in a reasonable manner certain illiquid securities held by both clients. The Commission’s order finds that Deccan also made materially misleading statements and omissions to one of the redeeming university clients (“University Two”) in an effort to advantage Deccan’s non-redeeming clients and investors, which included Bodas and other Deccan partners. The SEC also found that Deccan unreasonably failed to disclose its intent to tie up nearly 13% of the cash in University Two’s account in an illiquid side-pocket in the weeks leading up to University Two’s final redemption and at a time when Deccan and University Two were negotiating a short-term extension of their investment advisory agreement. According to the Commission’s order, Deccan also failed to retain text messages, as required by the Investment Advisers Act of 1940, including by virtue of Bodas on multiple occasions in 2019 and 2020, directing at least one Deccan officer to permanently delete their text messages.  Finally, the Commission’s order finds that Deccan lacked adequate policies and procedures for record retention and client and investor redemptions. Deccan was ordered to pay civil money penalties in the amount of $1,139,501 while Bodas was ordered to pay a civil money penalty of $500,000.  Deccan also agreed to certain undertakings including the retention of an independent compliance consultant.
  1. On August 1, 2022, the SEC instituted administrative proceedings against Donald Laguardia. Laguardia engaged in a scheme to defraud investors in the Frontier Funds. LaGuardia solicited investments in the Frontier Funds through material misrepresentations and omissions to investors and potential investors in the Frontier Funds. LaGuardia misappropriated a substantial portion of investor funds and Frontier Fund assets. LaGuardia was sentenced to five years in prison, ordered to pay $4,039,872.46 in restitution to defrauded investors, and $2,571,500 as forfeiture.