August 2023 SEC Updates

1. On August 31, 2023, the SEC charged William Conn, Jr., a certified public accountant, for participating in a Ponzi scheme perpetrated by John Woods using an investment fund Woods created and controlled, Horizon Private Equity, III, LLC (“Horizon III”). The SEC also charged Conn with conducting a fraudulent scheme through a different investment fund he formed and controlled, Horizon Private Equity, LLC (“Horizon I”). Conn agreed to serve as the public-facing manager of Horizon III, so Woods could perpetrate a Ponzi scheme that raised more than $110 million from over 400 investors without being detected by the investment adviser firm at which he was employed. The SEC charged Woods with multiple counts of securities fraud based on his role in orchestrating the Horizon III Ponzi scheme. Conn solicited 21 of his accounting clients to invest nearly $2 million in his investment fund, Horizon I. Conn represented that the money would be invested in selected hedge funds. Conn misappropriated and misused the investor funds to support his accounting business, pay personal expenses, and pay expenses related to a failed real-estate project. This matter is being litigated.

2. On August 30, 2023, the SEC charged Deyonte Anthony, a 23 year old investor, with conducting a fraudulent “free-riding” scheme in which he bought nearly $200,000 in securities without paying for them. Anthony opened a new brokerage account using a fraudulent application on which he overstated his personal income and then made $1 million in bogus deposits from his bank account, which held only nine cents at the time. Before Anthony’s deposits reversed for insufficient funds in his bank account, he used “immediate access” credit extended to him by his broker-dealer to purchase $199,956.65 in securities. Anthony’s broker-dealer discovered the scheme before Anthony could make any profits, froze his account, and liquidated his holdings.  This matter is being litigated.

3. On August 30, 2023, the SEC instituted administrative proceedings against Leroy King. King served as the Administrator and Chief Executive Officer of the Financial Services Regulatory Commission (“FSRC”), an agency of the Antiguan government.  King was responsible for Antigua’s regulatory oversight of the investment portfolio of Stanford International Bank, Ltd. (“SIBL”), which sold purported certificates of deposit to investors. King was a member of the board of directors of ASD Financial Services Corp (“ASD Financial”), a U.S. registered investment adviser and broker-dealer. King accepted bribes and other non-cash benefits from Robert Allen Stanford, the owner of SIBL. In exchange, King obstructed the SEC’s investigation into SIBL and abdicated FSRC’s oversight responsibilities over SIBL by representing that the FSRC had examined SIBL and that SIBL had conducted its banking business in a manner the FSRC considered to be “fully compliant,” when in fact King promised Stanford that FSRC would not audit SIBL’s investment portfolio. King withheld information from the SEC, shared with Stanford the SEC’s confidential inquiry to the FSRC (which sought assistance in its investigation of SIBL), and allowed Stanford to outline how King should respond to the inquiry. King was barred.

4. On August 30, 2023, the SEC instituted administrative proceedings against Blake Cathey. Cathey acted as an unregistered broker or dealer by selling securities of Accanito Equity, LLC, Accanito Equity II, LLC, Accanito Equity III, LLC, and Accanito Equity IV, LLC (collectively the “Accanito Equity LLCs”). Cathey was generally paid a 6-12% sales commission. Cathey received approximately $760,729 in transaction-based commissions from the Accanito Equity LLCs earned as a result of raising approximately $4,655,000 through the sale of the Accanito Equity LLCs’ securities to investors. Cathey was barred.

5. On August 30, 2023, the SEC instituted administrative proceedings against Chad Stickforth, the former managing member of a general partner of RSF Capital, L.P. (“RSF”).  RSF purported to be a hedge fund managed, indirectly, by Stickforth and his business partner. Stickforth misused and misappropriated investor funds, made false statements to investors, including through false account statements, and otherwise engaged in a variety of conduct that operated as a fraud and deceit on investors.  Stickforth was barred.

6. On August 29, 2023, the SEC instituted administrative proceedings against Anthony Liddle, an investment adviser representative and a registered representative with two firms that were dually registered as both SEC-registered investment advisers and broker-dealers. Liddle was also the majority owner and managing member of Prosper Wealth Management, LLC, a then State-registered investment adviser. Liddle pled guilty to one count of wire fraud and one count of money laundering.  Liddle was sentenced to a prison term of 97 months on each count and ordered to make restitution of $1,662, 041.80. Liddle, as managing member and control person of Prosper, defrauded advisory clients by using client funds on personal expenses and to pay down debt and having not invested the funds as promised. Liddle also used client funds to pay other investors and clients. Liddle while associated with an SEC-registered broker-dealer, solicited $1.9 million from 13 investors, purportedly for the purchase of L bonds issued by GWG Holdings, Inc. Liddle did not use the funds as represented, and instead used the investor funds for his personal expenses, without authorization. Liddle was barred.

7. On August 29, 2023, the SEC instituted administrative proceedings against Archipelago Trading Services, Inc. (“ATSI”). ATSI failed to file Suspicious Activity Reports (“SARs”) related to suspicious transactions that were executed on its Alternative Trading System (“ATS”), Global OTC, which exclusively trades in Over-the-Counter (“OTC”) securities, many of which are considered microcap or penny stock securities, on behalf of its subscribers, all of whom were U.S. registered broker-dealers. ATSI failed to have or implement reasonably designed anti-money laundering (“AML”) policies and procedures to surveil transactions executed on Global OTC for possible red flags regarding suspicious trading activity. Due to these deficiencies, ATSI failed to surveil for, investigate, or file SARs on numerous transactions that it had reason to suspect involved possible fraudulent activity or for which there was no business or apparent lawful purpose. ATSI failed to surveil for, recognize, and investigate numerous red flags of potentially unlawful manipulative trading, including possible spoofing, layering, wash trading, and pre-arranged trading, related to approximately 15,000 transactions executed on Global OTC, most of which involved microcap or penny stock securities. ATSI failed to file at least 461 SARs. ATSI was ordered to pay a civil money

penalty in the amount of $1,500,000.

8. On August 25, 2023, the SEC instituted administrative proceedings against Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC (collectively, “Wells Fargo”). Wells Fargo overcharged 10,945 advisory clients by more than $26.8 million in advisory fees. Certain investment adviser representatives from Wells Fargo agreed to reduce the firms’ standard, pre-set advisory fee rate for certain clients at the time these clients agreed to open accounts. The representatives made handwritten or typed changes on the clients’ standard investment advisory agreements that reflected the reduced fee rate. However, in certain instances, the account processing employees at Wells Fargo failed to enter the agreed-upon reduced advisory fee rate into the firms’ billing systems when setting up the clients’ accounts. As a result, the advisory clients were overcharged for advisory fees. Additionally, Wells Fargo failed to adopt and implement written compliance policies and procedures reasonably designed to prevent this overbilling.  Wells Fargo paid affected accountholders approximately $40 million, including interest, to reimburse them for the overcharging. Wells Fargo agreed to pay a $35 million penalty,

9. On August 23, 2023, the SEC reopened the comment period on its proposed rule that would redesignate and amend the current custody rule under the Investment Advisers Act of 1940 to enhance protections of customer assets managed by registered investment advisers. The reopened comment period will allow interested persons additional time to analyze the issues and prepare comments in light of the final rules and amendments to certain rules under the Investment Advisers Act of 1940 to enhance the regulation of private fund advisers.

10. On August 23, 2023, the SEC adopted new rules and rule amendments to enhance the regulation of private fund advisers and update the existing compliance rule that applies to all investment advisers. The new rules and amendments are designed to protect private fund investors by increasing transparency, competition, and efficiency in the private funds market. To enhance transparency, the final rules will require private fund advisers registered with the SEC to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance. In addition, the final rules will require a private fund adviser registered with the SEC to obtain and distribute to investors an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion or valuation opinion. To better protect investors, the final rules will prohibit all private fund advisers from providing investors with preferential treatment regarding redemptions and information if such treatment would have a material, negative effect on other investors. In all other cases of preferential treatment, the SEC adopted a disclosure-based exception to the proposed prohibition, including a requirement to provide certain specified disclosure regarding preferential terms to all current and prospective investors. In addition, the final rules will restrict certain other private fund adviser activity that is contrary to the public interest and the protection of investors. Advisers generally will not be prohibited from engaging in certain restricted activities, so long as they provide appropriate specified disclosure and, in some cases, obtain investor consent. The final rules, however, will not permit an adviser to charge or allocate to the private fund certain investigation costs where there is a sanction for a violation of the Investment Advisers Act of 1940 or its rules.

11. On August 22, 2023, the SEC instituted an administrative proceeding against Tarek Bahgat, a registered investment adviser representative as well as a registered presentative. Bahgat misappropriated approximately $378,000 from his investment advisory clients by, among other things, accessing his clients’ brokerage accounts and causing transfers from the client accounts to accounts Bahgat controlled. This matter is being litigated.

12. On August 22, 2023, the SEC instituted an administrative proceeding against Fundrise Advisors, LLC (“Fundrise”(, a SEC registered investment adviser that operates an online real estate investment platform.  Fundrise paid over $8 million to over 200 social media influencers and online publishers (“content creators”) to solicit Fundrise advisory clients without the disclosure and documentation required under former Investment Advisers Act of 1940 Rule 206(4)-3, which was then in place (the “Cash Solicitation Rule”).  As a result, Fundrise clients were not fully informed of the content creators’ financial interests in promoting Fundrise’s investment advisory services and real estate investment platform and therefore lacked the information necessary to evaluate the content creators’ recommendation of Fundrise. Additionally, Fundrise did not adopt and implement written policies and procedures concerning the use of solicitors that were reasonably designed to prevent violations of the Cash Solicitation Rule.  Fundrise agreed to a $250,000 civil penalty.

13. On August 21, 2023, the SEC announced charges against Titan Global Capital Management USA LLC (“Titan”), a FinTech investment adviser, for using hypothetical performance metrics in advertisements that were misleading. The SEC also charged Titan with multiple compliance failures that led to misleading disclosures about custody of clients’ crypto assets, the use of improper “hedge clauses” in client agreements, unauthorized use of client signatures and the failure to adopt policies concerning crypto asset trading by employees. Titan’s advertisements were misleading because they failed to include material information, for example, that the hypothetical performance projections assumed that the strategy’s performance in its first three weeks would continue for an entire year. Titan violated the marketing rule by advertising hypothetical performance metrics without having adopted and implemented required policies and procedures or taking other steps required by the SEC’s marketing rule. Titan made conflicting disclosures to clients about how Titan custodied crypto assets. Titan included in its client advisory agreements liability disclaimer language that created the false impression that clients had waived non-waivable causes of action against Titan. Titan failed to adopt policies and procedures concerning employee personal trading in crypto assets. Titan was ordered to pay disgorgement in the amount of $192,454, prejudgment interest of $7,598 and a civil money penalty in the amount of $850,000.

14. On August 18, 2023, the SEC instituted administrative proceedings against Carla Chastain, the principal of Chastain Financial, LLC, through which she conducted investment advisory and insurance business. Chastain made false and misleading statements of a material fact by holding herself out as an investment adviser representative when her registration had been revoked and stating she had earned an “IRA Distribution Specialist” designation when she never obtained such a designation. Chastain transacted an investment advisory business without being registered in violation of Arkansas law. Chastain was barred.

15. On August 17, 2023, the SEC instituted administrative proceedings against Joseph Todd, a dually-registered a broker-dealer and investment adviser. Todd misappropriated investor funds, falsely stated to investors that their funds would be invested in securities, sent out false account statements indicating that investors’ funds were fully invested and earning returns. Todd was barred.

16. On August 15, 2023, the SEC instituted administrative proceedings against James Anglim, a dually registered investment adviser and broker-dealer. Anglim helped facilitate market manipulation schemes involving the purchase and sale of stock in certain over-the-counter (“OTC”) issuers. Anglim abused his position to help several groups controlled by suspected or known securities laws violators illegally sell their OTC stock at manipulated prices to unsuspecting investors. These groups typically hid the fact that they controlled more than 10 percent of an issuer’s shares by dividing the ownership of their shares between numerous nominee corporations. Often, these groups controlled most, or almost all, of these issuers’ shares that were publicly available for trading. Despite the fact that these groups were not customers of the broker-dealer firms that Anglim worked for, Anglim entered into arrangements with these groups where he presented himself as a market maker for his firm to sell the OTC stocks short consistent with the prices suggested by the groups. Anglim then covered the short positions by buying sufficient shares from these groups in pre-arranged transactions. When Anglim submitted orders to buy at the end of each trading day, he knew that the groups would submit orders to sell at substantially the same volume and within an agreed price range so that Anglim typically would profit when he covered his short sales. Anglim’s activities artificially increased liquidity in the OTC stocks that the groups wanted to liquidate. His trading also made it appear to the market that the increase in trading volume and price was solely the result of independent investors’ demand for the shares. Anglim used the cover of his firm’s market making status to facilitate the groups’ manipulative trading on an unsuspecting market. Anglim was barred. 

17. On August 14, 2023, the SEC instituted administrative proceedings against Kahn Brothers Advisors, LLC (“KIA”), a SEC registered investment adviser, and Thomas Kahn, president of KIA. KIA and Kahn made misstatements and omitted information in statements to KIA’s advisory clients and prospective clients relating to brokerage services provided by KIA’s affiliated broker-dealer, Kahn Brothers LLC (“KBD”). KIA and Kahn failed to fully and fairly disclose to advisory clients all material facts related to the conflict that arose from KIA’s use of an affiliated broker-dealer to execute client transactions; and made misleading statements to clients and prospective clients that KIA would aggregate client transactions to reduce commissions. KIA and Kahn also failed to seek best execution for advisory clients, failed to conduct a best execution review of KBD, and failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940. KIA and Kahn were ordered to pay disgorgement in the amount of $701,799, prejudgment interest of  $146,100 and a civil money penalty in the amount of a $250,000.

18. On August 8, 2023, the SEC announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders. They agreed to pay combined penalties of $289M.

19. On August 10, 2023, the SEC charged Timothy Overturf and his investment advisory firm Sisu Capital, LLC (“Sisu”) for breaching their fiduciary duties to clients, by making unauthorized and unsuitable trades in client accounts. The SEC also charged Overturf’s father, Hansueli “Hans” Overturf, with aiding and abetting his son’s and Sisu’s violations.  First, Sisu and Timothy Overturf allowed Hans Overturf to give investment advice to Sisu clients while Hans had been suspended from providing investment advisory services by the State of California. Second, Sisu, Timothy, and Hans traded contrary to client instructions and to benefit their own interests by investing client funds in a thinly-traded bank stock. Sisu and Timothy purchased the stock as part of an undisclosed plan to amass collectively enough shares among Sisu’s clients and themselves for Timothy to propose business partnership ideas to the bank. Third, Hans recommended, and Timothy purchased on his clients’ behalf, an unsuitable, complex financial instrument intended for short-term use, which Sisu’s clients then held for months. Throughout these courses of conduct, Sisu generated over $2 million in advisory fees and other compensation.  This matter is being litigated.

21. On August 8, 2023, the SEC instituted administrative proceedings against Wedbush Securities Inc., a wholly owned subsidiary of Wedbush Financial Services, LLC, a  registered as a broker-dealer and investment adviser. Wedbush employees including at senior levels, failed to adhere to essential requirements and Wedbush’s own policies. Using their personal devices, these employees communicated both internally and externally by personal text messages, or other text messaging platforms such as WhatsApp (“off-channel communications”). Wedbush employees sent and received off-channel communications that related to the business of the broker-dealer and registered investment adviser operated by Wedbush. Wedbush did not maintain or preserve the substantial majority of these written communications.  Webush agreed to pay a civil penalty of $10,000,000.

23. On August 7, 2023, the SEC instituted administrative proceedings against Theorem Fund Services, LLC, fund administrator for the EIA All Weather Alpha Fund I, LP (the “Fund”). TFS was responsible for, among other things, calculating the Fund’s monthly Net Asset Value (“NAV”), allocating gross profit to investors, and calculating performance statistics for the Fund and investors. EIA All Weather Alpha Fund I Partners LLC (“EIA”), owned and controlled by Andrew Middlebrooks, was the investment adviser and general partner to the Fund (EIA and Middlebrooks are collectively referred to as the “Advisers”). Advisers engaged in a scheme to defraud the Fund and its investors by misappropriating and misusing investor funds. To facilitate this scheme, the Advisers, among other conduct, made repeated materially false and misleading statements to investors and prospective investors about the Fund’s performance, including in monthly investor capital account statements (“Investor Statements”) that were distributed by TFS through its online portal. While TFS was performing fund administration services, the Fund suffered significant losses as a result of trading by the Advisers. Instead of accounting for these losses as losses, TFS, at the Advisers’ direction, recognized an expense reimbursement as a receivable “due from [EIA]” (an asset of the Fund), which offset the effect of the loss, resulting in no decrease to the Fund’s NAV. TFS recorded this asset to the financial statements without evaluating whether this was appropriate and despite the existence of red flags. TFS then, using the NAV, created Investor Statements, which materially overstated the value of the investors’ investments. Certain investors, seeing the overstated returns on their Investor Statements, increased their investments in the Fund. TFS was ordered to pay disgorgement in the amount of $18,000, prejudgment interest of $4,271 and a civil money penalty in the amount of $100,000.

24. On August 4, 2023, the SEC instituted administrative proceedings against Christopher Herwig who held various positions at various times at Eli Global, including the Chief Investment Officer (“CIO”) and Portfolio Manager. Herwig served as CIO for various companies owned and controlled by Greg Lindberg (“Lindberg”). Herwig was also a director of Standard Advisory Services Limited (“SASL”), a registered investment adviser, a member of SASL’s investment committee, and SASL’s portfolio manager. Herwig pled guilty to a one-count Bill of Information charging him with a conspiracy to commit crimes in connection with insurance business, wire fraud, money laundering, transactional money laundering. Herwig willfully and knowingly engaged in a conspiracy to defraud certain of SASL’s advisory clients by engaging in a series of complex, related party transactions that resulted in Lindberg, and/or the companies that Lindberg controlled, misappropriating approximately $55 million dollars from the advisory clients, and engaging in a series of sham repurchase transactions totaling nearly $96 million dollars. These transactions, and others, put the interests of Lindberg and his entities ahead of the interests of SASL’s advisory clients. Herwig was barred.

25. On August 3, 2023, the SEC charges Jose Rocha for running a Ponzi scheme in which he took approximately $1.2 million from 13 investors. Rocha promised investors he would invest their money in securities with guaranteed returns of 12% per month. Rocha used only a small percentage of the money to make highly leveraged, and highly unsuccessful, trades of stock and stock options. Rocha spent the balance of the funds, the vast majority, to feed his gambling habit and embark on a luxury lifestyle. Rocha also used money from later investments to pay out on earlier investments. This matter is being litigated.

26. On August 2, 2023, the SEC filed insider trading charges against Charles Holzer, a family office executive and former broker who last year settled SEC charges that he traded in options of Dun & Bradstreet Corp. (DNB) on inside information. Holzer also placed unlawful trades in DNB stock through offshore accounts that were not disclosed to the SEC in connection with a prior investigation and settlement. Holzer based in Florida, learned material nonpublic information about the prospective DNB acquisition from an investment adviser pursuant to a non-disclosure agreement that prohibited him from disclosing or trading on the information. Holzer used that information to purchase 23,000 shares of DNB stock in offshore accounts belonging to two Cayman Islands-based entities that Holzer directly or indirectly controlled, Maglione International Ltd. and Frontenac Investments Ltd., resulting in $391,308 in ill-gotten profits. Although those trades took place at roughly the same time as the options trades at issue in the prior lawsuit, Holzer did not disclose the offshore trading to the SEC. Holzer was ordered to pay a civil money penalty in the amount of $1,173,926. Maglione and Frontenac was ordered to pay disgorgement in the amount of $331,389.  

27. On August 2, 2023, the SEC filed a complaint against Mina Tadrus and Tadrus Capital LLC related to Ponzi scheme. Tadrus have solicited and sold investments in Tadrus Capital Fund LP, a purported pooled investment vehicle that targeted members of the Egyptian Coptic Christian community. Tadrus raised more than $5 million from at least 31 investors and falsely told them that their funds would be pooled and invested using algorithmic trading that would guarantee a steady monthly return on investment. Tadrus did not actually invest the investors’ funds but instead used at least $1.4 million to make purported return on investment payments to other investors in Ponzi fashion and otherwise misappropriated at least $380,000. This matter is being litigated.

28. On August 1, 2023, the SEC issued administrative proceedings against Kathryn Meredith and John Harnish d/b/a KM Advisory Services.  Meredith and Harnish breached their fiduciary duties in connection with the receipt of mutual fund fees and commissions in the form of sales “loads” from advisory client investments without fully and fairly disclosing the related conflicts of interest. KMA invested the vast majority of its clients’ assets in certain mutual funds that paid 12b-1 fees and charged sales load commissions exclusively through an introducing broker-dealer, with whom Meredith and Harnish was a registered representative. Meredith was ordered to pay disgorgement in the amount of $574,743,  $77,252 in prejudgment interest and a civil money penalty in the amount of a $100,000. Harnish was ordered to pay disgorgement in the amount of $220,097,  $5,549 in prejudgment interest and a civil money penalty in the amount of a $75,000.

29. On August 1, 2023, the SEC charged Samuel Masucci and entities he founded and controls with disadvantaging an exchange traded fund (ETF) they managed and misleading the ETF’s trustees to obtain $20 million in rescue financing to avoid a possible bankruptcy. Masucci and the entities agreed to pay a combined $4.4 million to settle the charges. In exchange for $20 million in financing and other services, Masucci agreed to keep the ETF’s lucrative securities-lending business at the broker-dealer that provided the massive influx of financing despite offers with better terms from other securities lenders that could have benefited investors. Masucci then knowingly failed to disclose this joint arrangement between him and his firm, the fund, and the broker-dealer to the fund’s Independent Trustees, instead telling them that the fund had no other viable options. Masucci was ordered to pay civil money penalty in the amount of $400,000 and was barred. ETFMG was ordered to pay civil money penalty in the amount of $4 million.

30. On August 1, 2023, the SEC instituted administrative proceedings against Steven Woodard, Sr., the secretary and treasurer of Morganwood Ltd. Woodward was a registered representative and associated with four dual registrants and a registered investment adviser. Woodard, while acting as an investment adviser, engaged in a fraudulent scheme involving his unregistered offering of securities to defrauded investors, many of whom were also his advisory clients. Woodard concealed his fraudulent scheme by using investor monies to pay phantom returns to other investors in the offering, as well as creating false client account statements and provided these statements to investors. Woodward was barred.

31. On August 1, 2023, the SEC instituted administrative proceedings against John Woods owner of Livingston Group Asset Management Company d/b/a Southport Capital (“Southport Capital”). Woods also served as the President of Southport Capital, a registered investment adviser and a registered representative associated with a broker dealer. Woods, in connection with the sale of interest in Horizon Private Equity, III, LLC, made false statements to investors, misused and misappropriated investor funds, and otherwise engaged in conduct which operated as a fraud and deceit on investors. Woods was barred.

32. On July 31, 2023, the SEC published a Risk Alert presenting examination observations about key AML requirements. The Risk Alert reiterates the critical importance of AML compliance and law enforcement’s pursuit of misconduct that could threaten the safety of investor assets and the integrity of the financial markets. The Risk Alert presents examination observations about key AML requirements, such as independent testing of firms’ AML programs and training of their personnel, and identification and verification of customers and their beneficial owners.