On September 30, 2021, the SEC charged Naseem Salamah, an investment adviser representative formerly associated with a state-registered investment adviser, with allegedly defrauding his advisory clients out of nearly $1 million. Salamah stole more than $950,000 from at least three elderly advisory clients. Salamah chose these three clients because he did not think they would pay close attention to their brokerage account statements. The complaint alleges that Salamah falsely represented to his clients that he was moving their funds to diversify their securities holdings, but instead used fraudulently altered authorization forms to transfer their funds to a bank account that he controlled and spent their funds on his own personal expenses and luxury items, including dinners, vacations, luxury cars that he leased, and private school tuition for his children.. https://www.sec.gov/litigation/litreleases/2021/lr25233.htm
On September 30, 2021, the SEC instituted administrative proceedings against Richard Nguyen. NTV Financial Group, Inc. (“NTV Financial”) and Nguyen raised about $2.4 million from approximately 80 investors who invested in the “Nguyen Tran Le Fund.” Nguyen lured these investors by falsely claiming he could guarantee investors “no loss” of their principal investment and by falsely claiming that Nguyen had worked at Goldman Sachs as a fund manager whose accounts never suffered any losses. Nguyen did suffer significant losses in the fund and misappropriated approximately $600,000, spending a good portion of the money on himself and his girlfriend, relief defendant Mai Do. https://www.sec.gov/litigation/admin/2021/ia-5882.pdf
On September 30, 2021, the SEC announced settled charges against LPL Financial for anti-money laundering rule violations and for being a cause of certain antifraud violations by Eugenio Jimenez, Jr.’s, an unregistered investment adviser not affiliated with LPL. LPL is paying more than $4.8 million to resolve this matter. Garcia opened an account at LPL to further his scheme to defraud his advisory client, the Municipality of MayagĂĽez, Puerto Rico (the “City”). The order finds that, although required by LPL’s Customer Identification Program (CIP) rule procedures, LPL did not verify certain identification documents before opening the account. https://www.sec.gov/enforce/33-10992-s
On September 30, 2021, the SEC instituted settled charges against Redwood Wealth Management, LLC, and its president, Benjamin Lincoln, for failing to properly take custody of client assets. In 2019, Lincoln suggested that several Redwood clients purchase promissory notes issued by a mortgage company seeking an alternative to more traditional financing. The mortgage company was owned and controlled by another Redwood client. In total, Redwood clients invested $30 million in promissory notes issued by the mortgage company. The promissory notes, which were significant investments for those clients, were held outside of Redwood’s managed accounts. As a result, neither Redwood’s Chief Compliance Officer nor its Chief Investment Officer was aware of the investments, and they had no ability to monitor or evaluate the propriety of the investments as required by Redwood’s investment policies. https://www.sec.gov/enforce/ia-5880-s
On September 30, 2021, the SEC instituted an administrative proceedings against Robert Press, CEO of TCA Fund Management Group Corp. (“TCA”). TCA and the general partner to TCA’s private funds fraudulently inflated the TCA Funds’ net asset value and performance results through the recording of non-binding transactions and through the recording of fraudulent investment banking fees. TCA also misled the TCA Funds’ investors with respect to the performance of the TCA Funds by improperly including a promissory note of $34.3 million as income in the Master Fund’s 2015 financial statements. Press approved worksheets prepared by TCA for the TCA Funds’ monthly NAV that included these non-binding transactions and fraudulent investment banking fees. TCA sent this information to an outside independent fund administrator who used it to calculate the TCA Funds’ monthly NAV and performance results. Press’ severely reckless actions resulted in TCA providing this data to the fund administrator and recording the non-binding transactions and fraudulent investment banking fees on the TCA Funds’ books and records. https://www.sec.gov/litigation/admin/2021/33-10991.pdf
On September 30, 2021, the SEC filed a complaint against Richard Roberts, TCFG Investment Advisors, LLC, and TCFG Wealth Management, LLC. Roberts used his broker-dealer firm to aid and abet this misconduct. Roberts and TCFG made materially false and misleading statements to TCFG’s advisory clients. The defendants defrauded the TCFG clients by falsely disclosing that TCFG Wealth Management “may” receive portions of the fees charged to TCFG accounts by its third party clearing and custody firm (“Clearing Broker”) when, in fact, Roberts had directed Clearing Broker to charge TCFG clients an additional fee markup that was paid to TCFG Wealth Management. https://www.sec.gov/litigation/complaints/2021/comp25238.pdf
On September 30, 2021, the SEC filed charges against securities fraud recidivist and radio show host Mark Plummer, Mike Barrera, and five other individuals and entities, for allegedly conducting an oil and gas offering fraud and operating as unregistered broker-dealers. Plummer and his company, Richmond Engineering, Inc., began this fraud while under investigation by the SEC for a different alleged fraudulent scheme, for which the SEC charged him in June 2019. https://www.sec.gov/litigation/litreleases/2021/lr25235.htm
On September 28, 2021, the SEC announced today that Soteira Capital, LLC, formerly a Commission-registered investment adviser, and Derek Clark, its principal, have been charged with fraud and violating other provisions of the Investment Advisers Act of 1940. Laura Santos, Soteira’s chief compliance officer, was also charged for her role in certain violations of the Advisers Act. The respondents agreed to a settlements that included $165,000 in penalties and associational bars against the individuals. Soteira and Clark violated the Advisers Act’s antifraud provisions by overstating a client’s returns by $2.2 million, thereby collecting $340,231 in excessive performance fees, and by issuing false and misleading advertising concerning Soteira’s investment performance and managed assets. https://www.sec.gov/enforce/ia-5877-s
On September 28, 2021, the SEC instituted administrative proceedings against John Howley. Howley was a registered representative of a dually registered broker-dealer and investment adviser (the “IA/BD”). Howley suggested that his brokerage customers consider investing in securities offered by Global Credit Recovery LLC (“GCR”), advised them as to the merits of investing in GCR, and helped some of them obtain loans to fund their investments. Howley did not disclose this activity to the IA/BD. https://www.sec.gov/litigation/admin/2021/34-93146.pdf
On September 28, 2021, the SEC instituted administrative proceedings against Dane Roseman. Roseman was employed by the Woodbridge Group of Companies, LLC and its affiliated entities (collectively, “Woodbridge”). Roseman was paid commissions based on the amount of money raised from investors. During his employment with Woodbridge, Roseman acted as a broker and a person associated with a broker, but he has never been registered with the Commission as a broker-dealer or associated with a registered broker-dealer. https://www.sec.gov/litigation/admin/2021/34-93170.pdf
On September 27, 2021, the SEC announced settled charges against registered investment adviser Cowen Prime Advisors LLC for breaches of fiduciary duty arising from Cowen’s receipt of undisclosed compensation in connection with cash sweep money market funds. Cowen received revenue sharing payments from its unaffiliated clearing broker as a result of sweeping its advisory clients’ cash into certain money market funds instead of available lower-cost money market funds for which it would not have received any revenue sharing. https://www.sec.gov/enforce/ia-5874-s
On September 27, 2021, United States District Court for the Southern District of New York entered a final judgment against Defendants Nicholas J. Genovese, Willow Creek Investments, LP, and Willow Creek Advisors, LLC, who were charged by the SEC for a brazen offering and investment adviser fraud. The SEC’s complaint, filed on February 2, 2018, alleged that Genovese and his the Willow Creek entities raised more than $5.3 million from at least six investors by lying about his prior securities industry experience and size of operations, and by concealing his past criminal history. https://www.sec.gov/litigation/litreleases/2021/lr25226.htm
On September 27, 2021, the SEC charged Carebourn Capital, L.P. and its managing partner Chip Rice with acting as an unregistered securities dealer in connection with their buying and selling of billions of newly-issued shares of microcap securities, or “penny stocks,” which generated millions of dollars for Carebourn Capital and Rice. https://www.sec.gov/litigation/litreleases/2021/lr25223.htm
On September 27, 2021, the SEC charged Suyun Gu and his friend for engaging in a fraudulent scheme designed to collect liquidity rebates from exchanges by wash trading put options of certain “meme stocks” in early 2021. Suyun Gu became aware of the increased market volume and volatility driven by so-called “meme stocks” – stocks that were being actively promoted on social media platforms. Gu allegedly then devised a scheme to take advantage of the “maker-taker” program offered by exchanges by trading options of these stocks with himself. https://www.sec.gov/litigation/litreleases/2021/lr25224.htm
On September 27, 2021, the SEC filed two complaints charging four individuals and five entities for their roles in an allegedly fraudulent microcap scheme that generated more than $10 million in unlawful stock sales. According to the first of the two complaints, Page, a recidivist, and his son, Trevor Page, schemed with associates to acquire millions of shares in U.S. publicly traded microcap companies, disguise their control over the companies, and then dump their shares into the public markets in violation of the securities laws. https://www.sec.gov/litigation/litreleases/2021/lr25227.htm
On September 24, 2021, the SEC announced charges against Buttonwood Financial Group, LLC (“Buttonwood”), a registered investment adviser, and Jon McGraw, its president, chief compliance officer, and majority owner, in connection with investing client assets in generally more expensive mutual funds so that Buttonwood could avoid paying certain transaction costs. As investment advisers, Buttonwood and McGraw owe their advisory clients a fiduciary duty to act in their clients’ best interests. This fiduciary duty includes a duty of loyalty to fully disclose all material facts about the advisory relationship by disclosing, among other things, any conflicts of interest that may cause them to put their own interests before those of their clients. Buttonwood and McGraw also owe their clients a duty of care, which includes seeking best execution for clients. https://www.sec.gov/litigation/litreleases/2021/lr25222.htm
On September 23, 2021, the SEC charged a municipal advisor, Choice Advisors LLC, and its two principals, Matthias O’Meara and Paula Permenter, with violating their duties, engaging in unregistered municipal advisory activities, and related misconduct with respect to Choice’s charter school clients. The actions are the first-ever SEC cases enforcing Municipal Securities Rulemaking Board Rule G-42 on the duties of non-solicitor municipal advisors. The SEC’s complaint alleges additional misconduct by O’Meara. While still employed at the underwriting firm, O’Meara allegedly improperly operated in a dual capacity, simultaneously serving as a registered representative for the underwriting firm, and also as a municipal advisor where he purported to serve as two clients’ fiduciary. https://www.sec.gov/news/press-release/2021-188
On September 23, 2021, the SEC filed a litigated action charging Michael Shillin with defrauding at least 100 investment advisory clients. Shillin fabricated documents and made misrepresentations to clients, many of whom were elderly. Shillin misrepresented that certain clients had successfully subscribed for IPO or pre-IPO shares in high-profile companies when they had not, and lied to clients about the true value of their investment portfolios. https://www.sec.gov/litigation/litreleases/2021/lr25218.htm
On September 22, 2021, the SEC charged a San Diego County school district, Sweetwater Union High School District, and its former Chief Financial Officer, Karen Michel, with misleading investors who purchased $28 million in municipal bonds. According to the SEC’s complaint Sweetwater and Michel provided investors with misleading budget projections that indicated the district could cover its costs and would end the fiscal year with a general fund balance of approximately $19.5 million, when in reality the district was engaged in significant deficit spending and on track to a negative $7.2 million ending fund balance. The order finds that Michel managed the bond offering for the district and was aware of reports showing that the projections were untenable and contradicted by known actual expenses. https://www.sec.gov/litigation/litreleases/2021/lr25215.htm
On September 21, 2021, the SEC announced that it obtained a final judgment against James Nall, a real estate developer previously charged for engaging in insider trading by tipping others, including a close friend and business associate, in advance of a merger announcement involving Alabama-based snack food company, Golden Enterprises, Inc. https://www.sec.gov/litigation/litreleases/2021/lr25213.htm
On September 20, 2021, the SEC charged Leena Jaitley with operating fraudulent options trading websites. Jaitley operated two fraudulent websites called Managed Option Trading and OptionsbyPros. As alleged, clients would provide with the websites access to their on-line brokerage accounts and allow traders purportedly employed by the websites to trade options on their behalf, in return for a “start-up” fee and a percentage of the profit generated by those trades. The SEC alleges that to convince investors to subscribe for the services, Jaitley falsely claimed, among other things, that the websites used a unique, proprietary system designed to generate profits, had a long track record of successful investing, and employed scores of traders in New York with experience at large and reputable broker-dealer. https://www.sec.gov/litigation/litreleases/2021/lr25211.htm
On September 17, 2021, the SEC instituted administrative proceedings against RBC Capital Markets, LLC. RBC, when acting as sole underwriter or senior syndicate manager in negotiated offerings, undertook to allocate bonds according to an internal “standard methodology,” in the absence of different instructions from issuers. The firm’s standard methodology required RBC to fill all orders for customers and all dealer orders for RBC, syndicate members and other broker-dealers before allocating bonds to unregistered brokers known as “flippers.” However, RBC did not always follow the standard methodology when it did not have priority instructions from issuers and, in forty-one instances when orders exceeded the bonds available, it failed to prioritize institutional customer and/or dealer orders ahead of flipper orders. Further, in three instances where it had issuer instructions, RBC violated those instructions by allocating bonds to flippers ahead of orders for retail customers even though it knew that the flippers’ orders did not meet the issuer’s retail eligibility criteria for the offering. https://www.sec.gov/litigation/admin/2021/34-93042.pdf
On September 16, 2021, the SEC instituted settled charges against Regal Investment Advisors LLC and two of its principals, John Kailunas, II, and Brian Yarch, for breaching their fiduciary duties to provide advisory services to certain advisory clients after their original investment adviser representatives left Regal. Regal, Kailunas and Yarch also failed disclose conflicts of interest arising from compensation received from an affiliated portfolio manager. Regal, Kailunas, and Yarch charged advisory fees to 81 client accounts, but did not provide advisory services to those accounts. In many instances Regal failed to notify clients that their investment adviser representative had left Regal and been replaced by Kailunas and Yarch, and some clients were not contacted by anyone at Regal after this change took place. https://www.sec.gov/enforce/34-93035-s
On September 16, 2021, the SEC instituted an administrative proceedings against BFC Plannin, Inc., These proceedings arise out of breaches of fiduciary duty by BFC, a registered investment adviser, in connection with its mutual fund share class selection practices that resulted in receipt by its affiliate Berthel Fisher & Company Financial Services, Inc. (“BFCFS”), a dually registered broker-dealer and registered investment adviser, of two types of fees from BFC’s advisory clients’ investments. These fees included: fees BFCFS received when BFC purchased, recommended, or held for BFC’s advisory clients mutual fund share classes that paid fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”) instead of lower-cost available share classes of the same funds that did not charge these fees; and fees BFCFS received from its unaffiliated clearing broker as a result of BFC’s advisory clients’ uninvested cash being swept into share classes of certain money market mutual funds (“money market funds”) instead of lower-cost share classes of the same money market funds that did not result in the payment of fees to BFCFS that were available to clients. https://www.sec.gov/litigation/admin/2021/ia-5863.pdf
On September 16, 2021, the SEC charged Raquel Borges and her investment advisory firm, Global Access Investment Advisor, LLC, with fraud for misappropriating client assets. Borges and Global Access defrauded at least eight advisory clients by misappropriating at least $11 million of their funds. The complaint alleges that Borges and Global Access directed sales of securities in client accounts in order to misappropriate the proceeds, misappropriated proceeds of loans against client accounts arranged by Borges and Global Access, and misappropriated client funds intended for investment by writing checks to Borges and otherwise using client funds for Global Access’s operations. The complaint further alleges that Borges and Global Access concealed their fraudulent misappropriation of assets by sending clients portfolio statements and bank documents showing inaccurate account balances. According to the complaint, Borges used client funds to purchase real estate in Manhattan for her personal benefit, pay herself, and repay other clients. https://www.sec.gov/litigation/litreleases/2021/lr25209.htm
On September 14, 2021, the Chair of the SEC released a testimony before the United States Senate Committee on Banking, Housing and Urban Affairs. Chair Gary Gensler talked about the Market Structure, Predictive Data Analytics, Issuers and Issuer Disclosure, Funds and Investment Management, Enforcement and Examinations. https://www.sec.gov/news/testimony/gensler-2021-09-14
On September 13, 2021, the SEC instituted an administrative proceedings against Rothschild Investment Corporation, a dually-registered investment adviser and broker-dealer, breached its fiduciary duty to advisory clients by failing to disclose two types of compensation it received based on its advisory clients’ investments. Rothschild received fees as a result of client investments in certain mutual fund shares, including: (1) fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”); and (2) revenue sharing payments from an unaffiliated clearing broker (“Clearing Broker”) as a result of sweeping Rothschild’s advisory clients’ cash into certain money market mutual funds (“money market funds”). The investments that resulted in 12b-1 fees or revenue sharing payments were generally more expensive than lowercost options available to clients, including lower-cost share classes of the same mutual funds that did not result in any 12b-1 fees or revenue sharing payments. Rothschild did not provide full and fair disclosure of these fees and revenue sharing payments and the related conflicts of interest. With respect to the 12b-1 fees, Rothschild, although eligible to do so, did not self-report to the Commission pursuant to the Division of Enforcement’s Share Class Selection Disclosure Initiative (“SCSD Initiative”). https://www.sec.gov/litigation/admin/2021/34-92951.pdf
On September 8, 2021, the SEC instituted an administrative proceedings against Horter Investment Management, LLC and Drew Horter. Horter Investment, a registered investment adviser, and Drew Horter, Horter Investment’s founder and CEO, failed reasonably to supervise Kimm Hannan, an Investment Adviser Representative (“IAR”) with Horter Investment. Horter Investment’s overall supervisory structure was inadequate to reasonably supervise its IARs generally and Hannan specifically. Horter Investment failed to establish supervisory policies and procedures and failed to follow those policies and procedures it had in place. Horter Investment also failed reasonably to follow up on red flags. Similarly, Horter, who had overall supervisory responsibility for Horter Investment, failed to follow specific policies and procedures, failed reasonably to supervise Hannan, made open-ended delegations of supervisory responsibility without following up, and failed reasonably to follow up on red flags. Hannan misappropriated $728,001 from Horter Investment clients purportedly for his outside business activities (“OBA”), but instead he used those funds to gamble, pay personal expenses, and repay other investors. https://www.sec.gov/litigation/admin/2021/ia-5853.pdf
On September 7, 2021, the SEC instituted an administrative proceedings against Douglas Elstun. Elstun owned at least 75% of investment adviser Crossroads Financial Management, Inc. (“CFM”). Elstun functioned as an investment advisory representative (“IAR”) and served as CFM’s Investment Manager and Chief Compliance Officer. The Commission’s complaint alleges, among other things, that Elstun, an investment adviser and formerly the owner of the investment advisory firm CFM, owed his clients a fiduciary duty to act in their best interest and to fully disclose all material facts to them. In breach of this duty, the complaint alleges that Elstun (1) charged certain professional athlete clients higher advisory fees than what they had agreed upon, furthering his fraud by directing his CFM administrative staff employees to fabricate advisory agreements with phony fee percentages, which he then produced to the SEC staff, (2) misled advisory clients about his trading in high-risk, daily leveraged and/or inverse Exchange Traded Funds, and (3) made unsuitable investments for advisory clients. https://www.sec.gov/litigation/admin/2021/ia-5850.pdf
On September 3, 2021, the SEC instituted administrative proceedings against Direct Lending Investments, LLC, through its owner/former CEO, Brendan Ross, for engaging in a multi-year fraud that resulted in substantial overcharges of management and performance fees to its private funds, as well as the inflation of the private funds’ returns. Ross, acting on behalf of DLI, directed one of DLI’s investment counterparties, a small business lender, to falsify borrower payment information for the small business lender’s underlying loans and to falsely report to DLI that borrowers made hundreds of monthly payments when, in fact, they had not. This allegedly inflated the valuation of the investment position held by DLI’s private funds. Registration of DLI as an investment adviser was revoked. https://www.sec.gov/litigation/admin/2021/ia-5846.pdf
On September 3, 2021, the SEC instituted administrative proceedings against Frontier Wealth Management, LLC for failures to supervise and to adopt and implement written policies and procedures reasonably designed to prevent its investment advisory representatives (IARs) from recommending complex financial products to clients for whom they were not suitable. The SEC also charged IAR Shawn Sokolosky for making unsuitable investment recommendations and misstatements to clients regarding investments in a complex financial product. From January 2016 to February 2018 approximately 177 Frontier retail clients invested approximately $45 million into a Feeder Fund, which provided its clients access to invest in another fund (Fund A). Fund A used complex option strategies and synthetic futures positions to generate returns, which carried speculative and substantial risks with high volatility. The order finds that, without adequate policies, procedures, training, and supervision in place at Frontier, certain IARs failed to reasonably assess whether the Feeder Fund was suitable for each client. Consequently, certain clients with low risk tolerances and conservative trading preferences invested in the Feeder Fund. Sokolosky recommended that certain of his clients invest in the Feeder Fund without adequately assessing whether the product was suitable for them, and that he misrepresented the Feeder Fund’s risks and made misleading statements about the fees associated with the Feeder Fund. Frontier agreed to pay $267,617 in disgorgement, $47,096 in prejudgment interest, and a $350,000 civil penalty. Sokolosky consented to a 12-month collateral and investment company suspensions, and to pay a $100,000 civil penalty. https://www.sec.gov/enforce/33-10978-s
On September 2, 2021, the SEC instituted administrative proceedings against Michael Bressman. The Commission’s complaint alleged that Bressman carried out a fraudulent “cherry-picking” scheme while acting as a registered representative of FCG Advisors, LLC (FCGA). To carry out this scheme, Bressman purchased blocks of stock using an allocation account. When the price of the stock in the allocation account went up on the day of the trade (“Trade Day”), Bressman routinely transferred that stock from the allocation account to his own brokerage account or the brokerage account of a family member. By contrast, when the price of the stock went down on the Trade Day, Bressman routinely transferred that stock to one or more of his customers’ brokerage accounts. Bressman did not disclose to customers that he allocated stock trades in a way that favored himself and his family member, at his customers’ expense. Bressman consented to a bar. https://www.sec.gov/litigation/admin/2021/34-92875.pdf
On September 3, 2021, the SEC instituted administrative proceedings against Direct Lending Investments, LLC, through its owner/former CEO, Brendan Ross, for engaging in a multi-year fraud that resulted in substantial overcharges of management and performance fees to its private funds, as well as the inflation of the private funds’ returns. Ross, acting on behalf of DLI, directed one of DLI’s investment counterparties, a small business lender, to falsify borrower payment information for the small business lender’s underlying loans and to falsely report to DLI that borrowers made hundreds of monthly payments when, in fact, they had not. This allegedly inflated the valuation of the investment position held by DLI’s private funds. Registration of DLI as an investment adviser was revoked. https://www.sec.gov/litigation/admin/2021/ia-5846.pdf
On September 3, 2021, the SEC instituted administrative proceedings against Frontier Wealth Management, LLC for failures to supervise and to adopt and implement written policies and procedures reasonably designed to prevent its investment advisory representatives (IARs) from recommending complex financial products to clients for whom they were not suitable. The SEC also charged IAR Shawn Sokolosky for making unsuitable investment recommendations and misstatements to clients regarding investments in a complex financial product. From January 2016 to February 2018 approximately 177 Frontier retail clients invested approximately $45 million into a Feeder Fund, which provided its clients access to invest in another fund (Fund A). Fund A used complex option strategies and synthetic futures positions to generate returns, which carried speculative and substantial risks with high volatility. The order finds that, without adequate policies, procedures, training, and supervision in place at Frontier, certain IARs failed to reasonably assess whether the Feeder Fund was suitable for each client. Consequently, certain clients with low risk tolerances and conservative trading preferences invested in the Feeder Fund. Sokolosky recommended that certain of his clients invest in the Feeder Fund without adequately assessing whether the product was suitable for them, and that he misrepresented the Feeder Fund’s risks and made misleading statements about the fees associated with the Feeder Fund. Frontier agreed to pay $267,617 in disgorgement, $47,096 in prejudgment interest, and a $350,000 civil penalty. Sokolosky consented to a 12-month collateral and investment company suspensions, and to pay a $100,000 civil penalty. https://www.sec.gov/enforce/33-10978-s
On September 2, 2021, the SEC instituted administrative proceedings against Michael Bressman. The Commission’s complaint alleged that Bressman carried out a fraudulent “cherry-picking” scheme while acting as a registered representative of FCG Advisors, LLC (FCGA). To carry out this scheme, Bressman purchased blocks of stock using an allocation account. When the price of the stock in the allocation account went up on the day of the trade (“Trade Day”), Bressman routinely transferred that stock from the allocation account to his own brokerage account or the brokerage account of a family member. By contrast, when the price of the stock went down on the Trade Day, Bressman routinely transferred that stock to one or more of his customers’ brokerage accounts. Bressman did not disclose to customers that he allocated stock trades in a way that favored himself and his family member, at his customers’ expense. Bressman consented to a bar. https://www.sec.gov/litigation/admin/2021/34-92875.pdf
On August 31, 2021, the SEC instituted administrative proceedings against McDonald Partners, LLC. The proceedings arise out of Respondent’s role as placement agent for private securities offerings conducted by two pooled investment vehicles that Respondent advised (the “PIVs”). Those PIVs offered and sold securities to raise bridge funding for the construction of a resort in Montenegro. Investor monies raised through these offerings were to be used to purchase debt in a Montenegrin entity that was to construct the resort. In October 2016, Respondent became aware of allegations that its point person at the Montenegrin entity had misappropriated $488,331 of investor funds by misusing a debit card belonging to that entity to pay for certain personal expenses. According to Respondent, after being confronted with the allegations that this individual had misappropriated funds from the Montenegrin entity, he conceded that he was not entitled to certain of the funds alleged to have been misappropriated. Accordingly, after negotiation, the individual agreed to repay approximately $335,000 that he had allocated to personal expenses. Respondent did not disclose the misappropriation to existing investors in October 2016. Respondent then raised approximately $1.5 million in additional funds from existing security holders and new investors, including brokerage customers and advisory clients, in early 2017 without disclosing the misappropriation to those investors. In addition, for the period December 31, 2014 through December 31, 2018, Respondent failed either to provide investors in the PIVs with audited financial statements or to retain an independent public accountant to conduct surprise examinations of the books of those entities. Respondent shall pay disgorgement of $37,031.25, prejudgment interest of $7,651.86 and civil penalties of $150,000.00. https://www.sec.gov/litigation/admin/2021/33-10973.pdf
On August 30, 2021, the SEC instituted administrative proceedings against KMS Financial Services, Inc. The proceedings arise out of KMS’s failure to adopt written policies and procedures reasonably designed to safeguard customer records and information, in violation of Regulation S-P (the “Safeguards Rule”). The Safeguards Rule requires every registered investment adviser to adopt written policies and procedures reasonably designed to: (1) insure the security and confidentiality of customer records and information; (2) protect against any anticipated threats or hazards to the security or integrity of customer records and information; and (3) protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer. KMS violated the Safeguards Rule by failing to adopt written policies and procedures reasonably designed to safeguard records and information of its advisory clients, including personal identifying information (“PII”) stored on a cloud-based electronic mail (“email”) system, which KMS used for internal and external communications. Fifteen KMS financial adviser email accounts were accessed by unauthorized third parties resulting in the exposure of customer records and information, including PII. Furthermore, KMS’s incident response policy was not reasonably designed to ensure that the email account compromises were remediated in a timely manner to ensure the protection of customer PII. Although KMS discovered the first email account compromise in November 2018, it failed to adopt written policies and procedures requiring additional firm-wide security measures for all KMS email users until May 2020, and did not fully implement those measures until August 2020. This resulted in the exposure of sensitive customer records and information, including PII, of thousands of KMS customers throughout 2019 and the potential exposure of additional customer records and information until August 2020. KMS agreed to a civil money penalty of $200,000. https://www.sec.gov/litigation/admin/2021/34-92807.pdf
On August 30, 2021, the SEC instituted administrative proceedings against Roger Dobrovodsky. The proceeding arises from an offering fraud scheme perpetrated by George Blankenbaker (“Blankenbaker”) and his three companies. Dobrovodsky acted as an unregistered broker in connection with two unregistered offerings of securities. Dobrovodsky raised approximately $2,381,000 from the offer and sale of securities in unregistered transactions to 37 investors who were customers of his financial services business or clients of his state-registered investment advisory firm. Dobrovodsky fraudulently failed to disclose to his advisory clients that Blankenbaker owed him at least $200,000 and the material conflict of interest that this debt created. Dobrovodsky received approximately $203,981 in transaction-based compensation from those sales. Dobrovodsky was not registered as a broker-dealer with the Commission or associated with a registered broker-dealer during this time period. Dobrovodsky agreed to pay disgorgement of $203,981 and prejudgment interest of $15,802 and a civil fine of $150,000. https://www.sec.gov/litigation/admin/2021/33-10970.pdf Also, see https://www.sec.gov/litigation/admin/2021/33-10971.pdf and https://www.sec.gov/litigation/admin/2021/33-10969.pdf
On August 30, 2021, the SEC instituted administrative proceedings against Cantella & Co., Inc., for breach of fiduciary duty in connection with its receipt of third-party compensation in connection with client investments without fully and fairly disclosing its conflicts of interest. Cantella invested clients in cash sweep products that resulted in Cantella receiving revenue sharing payments. In spite of this financial arrangement, Cantella provided no disclosure of the conflict of interest arising from the firm’s receipt of this compensation. At all relevant times, Cantella also failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with disclosures related to its cash sweep revenue sharing practices. Cantella agreed to pay disgorgement of $536,953, prejudgment interest of $64,677, and a civil monetary penalty of $100,000. https://www.sec.gov/litigation/admin/2021/34-92809.pdf
On August 30, 2021, the SEC instituted administrative proceedings against Cambridge Investment Research, Inc. and Cambridge Investment Research Advisors, Inc.. The proceedings arise out of Cambridge’s failure to adopt written policies and procedures reasonably designed to protect customer records and information, in violation of Regulation S-P (the “Safeguards Rule”). The Safeguards Rule requires every registered investment adviser to adopt written policies and procedures reasonably designed to: (1) insure the security and confidentiality of customer records and information; (2) protect against any anticipated threats or hazards to the security or integrity of customer records and information; and (3) protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer. Cloud-based email accounts of over 121 Cambridge independent contractor representatives were taken over by third parties resulting in the exposure of at least 2,177 customers’ personally identifiable information (“PII”) stored in the compromised email accounts and potential exposure of another 3,800 customers’ PII. Although Cambridge discovered the first email account takeover in January 2018, it failed to adopt and implement firm wide enhanced security measures for cloud-based email accounts of its independent representatives in its written policies and procedures, such as the use of multi-factor authentication (“MFA”), for all Cambridge users until 2021. This resulted in the exposure of sensitive customer records and information, including PII, of Cambridge customers. Although Cambridge has an information security group at its headquarters that provided its independent representatives with cybersecurity guidance and policies and procedures, each independent representative was responsible for implementing cybersecurity measures. Some Cambridge independent representatives used cloud-based electronic mail (“email”) services for internal and external communications and routinely emailed and stored PII of Cambridge’s advisory clients in these email accounts. Cambridge’s policies recommended, but did not require, independent representatives to implement enhanced security measures, such as MFA, on cloud-based email accounts. Cambridge agreed to pay a civil money penalty jointly and severally in the amount of $250,000. https://www.sec.gov/litigation/admin/2021/34-92806.pdf
On August 30, 2021, the SEC instituted administrative proceedings against various regulated entities of Cetera. The proceedings arise out of Cetera Entities’ failure to adopt written policies and procedures reasonably designed to protect customer records and information, in violation of Regulation S-P (the “Safeguards Rule”) and failure to adopt and implement reasonably designed procedures for review of communications sent to impacted clients. The Safeguards Rule requires every registered investment adviser to adopt written policies and procedures reasonably designed to: (1) insure the security and confidentiality of customer records and information; (2) protect against any anticipated threats or hazards to the security or integrity of customer records and information; and (3) protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer. November 2017 and June 2020, email accounts of over 60 Cetera Entities’ personnel were taken over by unauthorized third parties resulting in the exposure of over 4,388 of Cetera Entities’ customers’ personally identifiable information (“PII”) stored in the compromised email accounts. At the time, none of these accounts had multi-factor authentication (“MFA”) turned on, even though Cetera Entities’ own policies required MFA “wherever possible,” beginning in 2018. Although these email account takeovers do not appear to have resulted in any unauthorized trades or transfers in brokerage customers’ or advisory clients’ (hereinafter “customers”) accounts, Cetera Entities violated the Safeguards Rule because their policies and procedures to protect customer information and to prevent and respond to cybersecurity incidents were not reasonably designed to meet these objectives, specifically as applied to independent contractor representatives and offshore contractors. Cetera Entities had a significant number of security tools at their disposal that allowed them to implement controls that would mitigate these higher risks. However, Cetera Entities failed to use these tools in the manner tailored to their business, exposing their customers’ PII to unreasonable risks. Cetera Entities agreed to pay a civil money penalty jointly and severally in the amount of $300,000. https://www.sec.gov/litigation/admin/2021/34-92800.pdf
On August 27, 2021, the SEC instituted administrative proceedings against Educators Financial Services, Inc, a registered investment adviser that primarily markets its services to teachers, violated the Advisers Act as a result of its billing practices and mutual fund share class selection for clients. With respect to its billing practices, Educators Financial (i) failed to consistently aggregate the value of all accounts held by family members living in the same household when determining the fee rate, causing certain clients to pay a higher advisory fee than they should have; and (ii) failed to refund pre-paid advisory fees after clients terminated the advisory relationship. Educators Financial also purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds that were available to the clients. Educators Financial failed to adequately disclose all material facts regarding this conflict of interest and breached its duty to seek best execution by causing certain advisory clients to invest in fund share classes that charged 12b-1 fees when share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions were available to the clients. Finally, Educators Financial failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its billing practices and its mutual fund share class selection. Respondent Educators agreed to pay disgorgement, prejudgment interest, and a civil penalty, totaling $790,365.83. https://www.sec.gov/litigation/admin/2021/ia-5836.pdf
On August 27, 2021, the SEC issued a press release requesting information and public comments on matters relating to investment advisers and broker-dealers use of “Digital Engagement Practices” (“DEPs”). DEPs include behavioral prompts, differential marketing, game-like features (commonly referred to as gamification), and other design elements or features designed to engage with retail investors on digital platforms (e.g., websites, portals, and applications), as well as the analytical and technological tools and methods. SEC Chair Gary Gensler said “In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy. Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors.” Further, the Commission is hoping to learn what conflicts of interest may arise from DEPs when making a recommendation or providing investment advice. The Commission is also issuing its “Request” to better understanding the nature of analytical tools and other technology used by investment advisers to develop and provide investment advice to clients, including (1) oversight of this technology; (2) how investment advisers and clients have been affected by technology; (3) potential risks to investment advisers, clients, and the markets more generally related to this technology; and (4) whether regulatory action may be needed to enhance investor protection while preserving the ability of investors to benefit from investment advisers’ use of technology. The Commission is hoping to learn what conflicts of interest may arise from optimization practices and whether those optimization practices affect the determination of whether DEPs are making a recommendation or providing investment advice. Comments will be posted here: https://www.sec.gov/rules/other/2021/online-trading-investment-platforms-feedback-flyer.html. https://www.sec.gov/news/press-release/2021-167
On August 25, 2021, the SEC charged an investment adviser and its principal with operating $110 million ponzi scheme. John Woods and two entities he controls: registered investment adviser Livingston Group Asset Management Company, d/b/a Southport Capital (Southport), and investment fund Horizon Private Equity, III LLC (Horizon) were named as defendants. The defendants raised more than $110 million from over 400 investors in 20 states by offering and selling membership units in Horizon. Woods, Southport, and other Southport investment adviser representatives allegedly told investors – including many elderly retirees – that their Horizon investments were safe, would be used for different investment activities, would pay a fixed rate of return, and that investors could get their principal back without penalty after a short waiting period. According to the complaint, however, these statements were false and misleading. The complaint also alleges that Woods repeatedly lied to the SEC during regulatory examinations of Southport. https://www.sec.gov/news/press-release/2021-163
On August 25, 2021, the SEC instituted administrative proceedings against Charles Samel and imposed a bar. Samel aided and abetted a scheme by International Investment Group, LLC to defraud its investment advisory clients. Specifically, Samel helped to conceal losses in the portfolio of IIG’s flagship hedge fund by preparing false documentation to be provided to the fund’s auditors. https://www.sec.gov/litigation/admin/2021/ia-5831.pdf
On August 25, 2021, the SEC instituted administrative proceedings against Jonathan Roberts Advisory Group, Inc. d/b/a J.W. Cole Advisors, Inc.. The proceedings arise out of breaches of fiduciary duty by JWCA, a registered investment adviser, in connection with JWCA’s mutual fund share class selection practices that resulted in an unaffiliated broker-dealer, J.W. Cole Financial, Inc. (“JWCF”), receiving three types of fees as a result of JWCA’s advisory clients’ investments. The fees that JWCF received resulted in a benefit to JWCA due to an expense sharing agreement between JWCA and JWCF. The Expense Sharing Agreement had the effect of reducing the amount JWCA paid to JWCF under that agreement when JWCA placed its clients in certain investments that paid higher fees to JWCF. These fees included: (1) fees JWCF received when JWCA purchased, recommended, or held for clients mutual fund share classes that paid fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”) instead of lower-cost available share classes for the same funds that did not charge these fees; (2) fees JWCF received from its unaffiliated clearing broker as a result of JWCA’s advisory clients’ investments in share classes of mutual funds for which the clearing broker paid revenue sharing instead of lower-cost available share classes for the same funds that were not eligible for such payments; and (3) fees JWCF received from its clearing broker as a result of JWCA sweeping its advisory clients’ cash into certain money market mutual funds (“money market funds”) instead of lower-cost share classes for the same money market funds that were available to clients that did not result in the payment of fees to JWCF. JWCA agreed to pay disgorgement, prejudgment interest, and a civil penalty, totaling $1,957,053.11. https://www.sec.gov/litigation/admin/2021/ia-5832.pdf
On August 24, 2021, the SEC instituted administrative proceedings against Northwest Advisors, Inc.. Northwest purchased, recommended or held for advisory clients mutual fund share classes that charged 12b-1 fees when lower-cost share classes of the same funds were available to the clients. Northwest did not have to pay transaction fees for trades placed in clients’ accounts in share classes that charged 12b-1 fees, but did have to pay transaction fees in connection with lower-cost share classes of the same funds. This practice created a conflict of interest that the firm did not adequately disclose to clients. In addition, Northwest breached its duty to seek best execution for its clients by investing them in mutual fund share classes with 12b-1 fees rather than available lower-cost share classes of the same funds. Northwest Advisors also failed to adopt and implement written policies and procedures designed to prevent these violations. Northwest agreed to pay disgorgement of $779,416, prejudgment interest of $123,084, and a civil penalty of $245,000. https://www.sec.gov/enforce/ia-5830-s
On August 20, 2021, the SEC charged Robert Mueller and his company deeproot Funds, LLC with operating a fraudulent scheme and misappropriating investor assets. According to the complaint, Mueller and deeproot persuaded investors, many of whom were retirees, to cash out annuities they held with other investment companies and invest in the funds. The complaint alleges that the funds ultimately received more than $58 million from investors. As alleged, Mueller funneled more than $30 million of the funds’ assets to other businesses he controlled, and used at least $820,000 of new investor money to pay earlier investors. The complaint also alleges that Mueller and deeproot, acting with and through defendant Policy Services, Inc. — another entity Mueller owned — paid Mueller approximately $1.6 million in salary that was not adequately disclosed to the funds or their investors while also misappropriating another approximately $1.5 million to pay Mueller’s personal expenses. https://www.sec.gov/litigation/litreleases/2021/lr25179.htm
On August 19, 2021, the SEC instituted administrative proceedings against SoFi Wealth, LLC (“SoFi Wealth”) for breaching its fiduciary duties to clients in connection with its April 2019 investment of client assets into two new exchange-traded funds (“ETFs”) sponsored by its parent company, Social Finance, Inc. (“SoFi”). On April 12, 2019, SoFi Wealth transferred assets in approximately 20,000 SoFi Wealth client accounts from third-party ETFs into two new ETFs sponsored by SoFi. SoFi Wealth sold the third-party ETFs its clients had held and used the proceeds of those sales to purchase positions in the SoFi ETFs, which triggered tax consequences for many of SoFi Wealth’s clients. Prior to SoFi Wealth executing these transactions, SoFi Wealth had failed to disclose to clients conflicts of interest associated with the transactions. Specifically, SoFi Wealth’s disclosures did not explain that SoFi Wealth (1) preferred SoFi’s proprietary ETFs over third-party ETFs as investment options for clients, and that SoFi’s economic interest in these proprietary ETFs presented a conflict of interest for SoFi Wealth, (2) was investing client assets in these proprietary ETFs to help market the SoFi brand as having a broader array of services and products than previously offered, and (3) intended to use client assets to capitalize the new SoFi ETFs with significant investment on their second day of trading, making the SoFi ETFs more liquid and favorable to the market. SoFi Wealth caused its clients to engage in these transactions without making tax assumptions or considering tax consequences. SoFi Wealth agreed to a penalty of $300,000. https://www.sec.gov/litigation/admin/2021/ia-5826.pdf
On August 18, 2021, the SEC named Sanjay Wadhwa as the Deputy Director of Enforcement Division. Mr. Wadhwa most recently served as the Senior Associate Director of the Division of Enforcement in the New York Regional Office (NYRO), where he managed more than 150 personnel in enforcing federal securities laws. https://www.sec.gov/news/press-release/2021-157
On August 17, 2021, the SEC charged Jeffrey Slothower, through his entity Battery Private, Inc., engaged in two separate fraudulent schemes. In the first alleged scheme, Slothower misappropriated more than $1 million from an advisory client and her spouse, a prospective client. In the second alleged scheme, Slothower made material misrepresentations in connection with private sales of a penny stock owned by Battery Private. The SEC’s complaint further alleges that Slothower exaggerated the size of Battery Private’s regulatory assets under management in SEC filings. https://www.sec.gov/litigation/litreleases/2021/lr25171.htm
On August 17, 2021, the SEC charged Fusion Analytics Investment Partners, LLC (FAIP) and its CEO Michael Conte with breaches of fiduciary duty and, along with Fusion Analytics Holdings, LLC (Fusion Holdings), with fraud in connection with the sale of promissory notes. According to the SEC’s complaint, the defendants solicited individual retail investors and advisory clients to purchase promissory notes issued by Fusion Holdings and raised $1.4 million from 10 investors without disclosing material facts regarding FAIP’s declining financial condition. The complaint further alleges that Conte, on behalf of FAIP and Fusion Holdings, made material representations to investors regarding FAIP’s profitability and the safety and soundness of the promissory notes. https://www.sec.gov/litigation/litreleases/2021/lr25173.htm
On August 17, 2021, the SEC instituted administrative proceedings against Murchinson Ltd.; its principal, Marc Bistricer; and its trader, Paul Zogala (the respondents), for providing erroneous order-marking information that caused executing brokers to violate Regulation SHO. In addition, Murchinson and Bistricer settled charges for causing a dealer to fail to register with the SEC. The respondents provided erroneous order-marking information on hundreds of sale orders of their hedge fund client to the hedge fund’s brokers, causing those brokers to mismark the hedge funds’ sales as “long.” In providing the inaccurate information, the respondents also caused the hedge fund’s brokers to fail to borrow or locate shares prior to executing the sales. Murchinson and Bistricer agreed to pay, jointly and severally, disgorgement of $7,000,000, with prejudgment interest of $1,078,183. Murchinson, Bistricer, and Zogala also agreed to pay penalties of $800,000, $75,000, and $25,000, respectively. https://www.sec.gov/news/press-release/2021-156
On August 17, 2021, the SEC instituted administrative proceedings against a former employee of Medivation Inc. with insider trading in advance of Medivation’s announcement that it would be acquired by pharmaceutical giant Pfizer Inc. Matthew Panuwat, the then-head of business development at Medivation, a mid-sized, oncology-focused biopharmaceutical company, purchased short-term, out-of-the-money stock options in Incyte Corporation, another mid-cap oncology-focused biopharmaceutical company, just days before the Aug. 22, 2016, announcement that Pfizer would acquire Medivation at a significant premium. Panuwat allegedly purchased the options within minutes of learning highly confidential information concerning the merger. According to the complaint, Panuwat knew that investment bankers had cited Incyte as a comparable company in discussions with Medivation and he anticipated that the acquisition of Medivation would likely lead to an increase in Incyte’s stock price. The complaint alleges that Medivation’s insider trading policy expressly forbade Panuwat from using confidential information he acquired at Medivation to trade in the securities of any other publicly-traded company. Following the announcement of Medivation’s acquisition, Incyte’s stock price increased by approximately 8%. The complaint alleges that, by trading ahead of the announcement, Panuwat generated illicit profits of $107,066. https://www.sec.gov/news/press-release/2021-155
On August 17, 2021, the SEC instituted administrative proceedings against Murchinson Ltd., Marc Bistricer, and Paul Zogala concern respondents causing the executing brokers of a hedge fund (the “Hedge Fund”) to violate the order-marking and locate requirements of Regulation SHO of the Exchange Act, and causing the Hedge Fund to act as a dealer without registering with the Commission, or being exempt from registration. Respondents caused the Hedge Fund to place “long” sale orders with its brokers. At the time hundreds of these orders were entered, the Hedge Fund was not “deemed to own” the stock being sold and did not have a net long position in the stock for the purposes of Regulation SHO. Respondents should have identified these orders as “short” sales. Because this order-marking information was erroneous, Respondents caused the Hedge Fund’s executing brokers to mismark such sale orders as “long” in violation of Rule 200(g) of Regulation SHO. In providing erroneous order-marking information, Respondents also caused the Hedge Fund’s executing brokers to violate Rule 203(b)(1) of Regulation SHO, because the executing brokers neither borrowed nor located shares available for borrowing prior to effecting those sales. Because certain of the Hedge Fund’s sale orders were erroneously marked as “long,” Respondents’ executing brokers did not apply the correct requirements and restrictions for short sales set forth in Regulation SHO. For example, the Hedge Fund avoided any costs that might have been incurred in connection with borrowing the stock. In addition, Respondents’ erroneous order-marking information for such sale orders effectively caused the Hedge Fund to receive two extra trading days to close out any failures to deliver before its brokers executed a “buy in.” The Hedge Fund entered into securities purchase agreements with multiple issuers whose stock traded on the Nasdaq Stock Market. In connection with certain of these securities purchase agreements, the Murchinson Respondents caused the Hedge Fund to buy and sell securities for its own account in connection with an offering of such securities without registering as a dealer with the Commission, or being exempt from registration. The respondents agreed to pay, jointly and severally, disgorgement of $7,000,000, prejudgment interest of $1,078,183 and a civil money penalty of $800,000. https://www.sec.gov/litigation/admin/2021/34-92684.pdf
On August 13, 2021, the SEC charged Martin Ruiz and two entities he controls, Carter Bain Wealth Management, LLC (Carter Bain) and RAM Fund, LP. According to the SEC’s complaint, Ruiz induced at least 56 investors, many of whom are elderly clients of Ruiz’s New Mexico-based investment adviser Carter Bain, to invest at least $10.6 million in RAM by falsely claiming that their funds would be used to acquire real estate and to make commercial loans. According to the complaint, however, Ruiz misappropriated the vast majority of the investors’ funds to support his lavish lifestyle by, among other things, paying for his residences in Manhattan and Santa Fe, covering millions of dollars in credit cards bills, and making student loan payments. The complaint also alleges that Ruiz hid the fraud from investors by making Ponzi-like payments, and providing investors with false valuations concerning their RAM investments. https://www.sec.gov/news/press-release/2021-150 https://www.sec.gov/litigation/complaints/2021/comp25165.pdf
On August 13, 2021, the SEC instituted administrative proceedings against ISC Advisors, Inc. for a breach of fiduciary duty to its advisory clients in connection with: (a) ISCA’s mutual fund share class selection practices and the receipt of financial benefits for advising clients to purchase and hold mutual fund share classes that paid fees pursuant to Rule 12b-1; and (b) receipt of financial benefits in the form of revenue sharing generated from advisory clients’ assets held in cash or cash sweep programs. ISCA agreed to pay disgorgement of $438,018.45, prejudgment interest of $98,326 and penalty of $180,000. https://www.sec.gov/litigation/admin/2021/ia-5820.pdf
On August 12, 2021, the SEC instituted administrative proceedings against Edgar Radjabli for engaged in three fraudulent courses of conduct involving the offering of and transactions in securities, as well as offering registration and unlawful tender offer practice violations. Radjabli conducted an offering of Apis Tokens in which he misrepresented to prospective investors in Apis Token Fund that $1.7 million had been raised during the token pre-sale when no sales had taken place. Radjabli, individually and through Apis Capital, manipulated the market for securities of NASDAQ-listed issuer Veritone, Inc. by announcing an unsolicited tender offer to acquire Veritone common stock when he had neither the capital nor financing to complete the offer. Radjabli engaged in an offering of a security called the HCF CD through My Loan Doctor, raising approximately $19.95 million from 461 investors based on representations that the proceeds would be used to originate loans to healthcare professionals and, when not so used, would be insured. However, Loan Doctor made no loans to healthcare professionals, and invested the bulk of the proceeds in unsecured loans to digital asset lending companies. Radjabli ultimately returned all Loan Doctor investor funds plus interest. Radjabli agreed to be barred. https://www.sec.gov/litigation/admin/2021/ia-5819.pdf
On August 9, 2021, the SEC instituted administrative proceedings against Poloniex LLC to settle charges for operating an unregistered online digital asset exchange in connection with its operation of a trading platform that facilitated buying and selling of digital asset securities. The SEC’s order finds that when Poloniex sold its platform, Poloniex operated a web-based trading platform that facilitated buying and selling digital assets, including digital assets that were investment contracts and therefore securities. The Poloniex trading platform met the criteria of an “exchange” as defined by the securities laws because the trading platform provided the non-discretionary means for trade orders to interact and execute through the combined use of the Poloniex website, an order book, and the Poloniex trading engine. The order finds that notwithstanding its operation of the Poloniex trading platform, which was available to U.S. investors, Poloniex did not register as a national securities exchange nor did it operate pursuant to an exemption from registration at any time. Without admitting or denying the SEC’s findings, Poloniex agreed to pay disgorgement of $8,484,313, prejudgment interest of $403,995, and a civil penalty of $1.5 million for a total of $10,388,309. https://www.sec.gov/news/press-release/2021-147
On August 9, 2021, the SEC charged Evarist Amah with engaging in a years-long scheme to defraud fellow members of his religion, the Grail Movement. The SEC’s complaint alleges that, Amah raised approximately $700,000 from his advisory clients using materially false and misleading statements about his investment performance, telling them that he had generated modest returns on their investments when, in reality, he had already lost virtually all of their money. Amah also fabricated at least two performance statements to perpetuate his fraudulent scheme and conceal his misconduct. Amah also allegedly violated the fiduciary duties he owed to his individual clients by favoring another client, a fund, over them, using the individual clients’ assets to pay expenses owed by the fund. https://www.sec.gov/litigation/litreleases/2021/lr25162.htm
On August 6, 2021, the SEC instituted administrative proceedings against Kimberly Butler, Prosperity Economics Partners, LLC and Partners for Prosperity, LLC for making untrue and misleading statements when offering the investments. Butler failed to disclose that the investments she offered were limited to companies that had agreed to compensate her based on a percentage of the price the investors paid to purchase the securities. Failing to disclose this compensation made her statements about the investments misleading because a reasonable investor would consider her compensation as bearing on her objectivity and motivation for offering the securities. As to investors who were Prosperity clients, the compensation Butler stood to receive constituted a conflict of interest, which she did not disclose to them. While recommending investments in feeder funds that invested exclusively in Company A private funds, Butler disseminated private-placement memoranda describing her experience selling life-settlement investments but failing to disclose that she was subject to a 2016 Washington cease and-desist order alleging fraud in life-settlement sales in the state. Butler and her two entities acted as unregistered brokers in these transactions. Butler agreed to a bar and a civil money penalty of $275,000. https://www.sec.gov/litigation/admin/2021/33-10962.pdf
On August 4, 2021, the SEC instituted administrative proceedings against Wendan Bao and Shuo Gu for misappropriation of assets of Chinese nationals resident in the United States in connection with a private securities offering. Bao and Gu diverted the money to unauthorized uses. Among other things, Bao and Gu used the money to pay off their unrelated business debts. Respondents agreed to be barred and pay, jointly and severally, disgorgement of $310,000 and prejudgment interest of $29,012. https://www.sec.gov/litigation/admin/2021/33-10960.pdf
On August 3, 2021, the SEC instituted administrative proceedings against USA Financial Securities Corporation for engaging in practices that violated its fiduciary duty to its advisory clients. USAFS received revenue sharing when investing client assets in cash sweep money market funds without disclosing this financial conflict of interest to USAFS’s clients. USAFS failed to adopt and implement written compliance policies and procedures reasonably designed to prevent this violation. USAFS agreed to pay disgorgement of $162,918, prejudgment interest of $26,537 and a civil penalty of $60,000. https://www.sec.gov/enforce/34-92553-s
On August 3, 2021, the SEC instituted administrative proceedings against Douglas Hodge, formerly the COO and CEO of Pacific Investment Management Company LLC (“PIMCO”). Hodge previously plead guilty of conspiracy to commit mail and wire fraud and honest services mail and wire fraud and to one felony count of money laundering conspiracy. On February 7, 2020, he was sentenced to a prison term of nine months, two years of supervised release, 500 hours of community service, and ordered to pay a fine in the amount of $750,000. Hodge agreed to be barred. https://www.sec.gov/litigation/admin/2021/34-92554.pdf
On August 2, 2021, the SEC instituted administrative proceedings against First Heartland Consultants, Inc. for breach of its fiduciary duty to advisory clients by failing to disclose three types of compensation paid to First Heartland’s affiliated broker-dealer. First Heartland’s affiliated broker received revenue sharing payments from an unaffiliated clearing broker (“Clearing Broker”) as a result of First Heartland’s advisory clients’ investments in certain mutual funds, including certain cash sweep money market mutual funds. The mutual funds and money market funds that resulted in revenue sharing payments were generally more expensive than lower-cost options available to clients, including in many instances when there were lower-cost share classes of the same mutual funds available to clients that did not result in any revenue sharing. In addition, First Heartland’s affiliated broker received compensation resulting from the mark-up of several Clearing Broker fees charged to First Heartland’s advisory clients. Heartland did not adequately disclose to advisory clients both revenue sharing and fee mark-ups that were paid to its affiliated broker as well as the associated conflicts of interest. First Heartland agreed to pay disgorgement, prejudgment interest and a civil penalty totaling $1,045,528. https://www.sec.gov/litigation/admin/2021/ia-5812.pdf
On August 2, 2021, the SEC charged recidivist Michael Shustek, the CEO of several Las Vegas real estate investment trusts (“REITs”), and his wholly owned investment advisory firm, Vestin Mortgage LLC. The complaint alleges that Shustek fraudulently enriched himself and one of the REITs he controlled, The Parking REIT, at the expense of two publicly traded REITs that he earlier had founded, Vestin Realty Mortgage I (“VRTA”) and Vestin Realty Mortgage II (“VRTB”). According to the complaint, Shustek drained $29 million from VRTA and VRTB in order to funnel the money into The Parking REIT and later directed VRTA and VRTB to enter into a series of money-losing transactions in which the same six buildings were repeatedly re-sold, all to benefit himself and The Parking REIT. The complaint also alleges that Shustek deceived the boards of directors of VRTA and VRTB-and violated his fiduciary duties to those companies-in two separate securities transactions to get the companies to pay him almost $10 million. Finally, the complaint alleges that Shustek repeatedly misled investors by causing VRTA and VRTB to make false and misleading statements in their public filings, which hid his self-dealing. https://www.sec.gov/litigation/litreleases/2021/lr25154.htm