1. On June 27, 2022, the SEC instituted administrative proceedings against German Nino for misappropriating $5.8 million from one of his long-standing advisory clients. Nino represented that he would invest all of the client’s funds in securities but instead used some of the funds for personal expenses, namely for gifts and travel and living expenses for women with whom he had romantic relationships. Nino also used a portion of the client’s funds to fully repay another client from whom he had previously misappropriated funds. Nino created and provided the client with fictitious account statements purporting to show the client’s investment portfolio and related balances. Nino also manipulated UBS’s records to ensure that the client did not receive notifications for wire transfers out of one of the client’s accounts. Nino forged the client’s signature on letters of authorization. The matter is being litigated. https://www.sec.gov/litigation/admin/2022/34-95160.pdf
2. On June 24, 2022, the SEC instituted administrative proceedings against Geluk Capital Management Ltd. (GCM) and Douglas Fathers, President of GCM. GCM and Fathers represented to investors and prospective investors that the Geluk Fund had its own proprietary trading strategy and risk controls that had resulted in a multi-year track record of positive performance. Geluk Fund had none of these things and was instead sending investor money to a third-party manager. GCM and Fathers also charged the Geluk Fund fees in a manner that was inconsistent with fund governing documents. GCM and Fathers were ordered to pay disgorgement of $29,081, prejudgment interest of $3,607, and a civil money penalty of $60,000. https://www.sec.gov/litigation/admin/2022/33-11077.pdf
3. On June 23, 2022, the SEC adopted amendments to require certain documents filed by investment advisers and make technical amendments to modernize Form 13F and enhance the information provided. With the exception of the amendments to Form 13F, the new rules and form amendments will be effective 60 days after publication in the Federal Register. The amendments to Form 13F will be effective on January 3, 2023. https://www.sec.gov/news/press-release/2022-113?utm_medium=email&utm_source=govdelivery
4. On June 22, 2022, the SEC announced its Spring 2022 regulatory agenda and “deregulatory actions”. The report can be found here: https://www.sec.gov/news/press-release/2022-112?utm_medium=email&utm_source=govdelivery
5. On June 15, 2022, the SEC charged Loral Langemeier and Live Out Loud, Inc. with selling securities in unregistered oil and gas offerings, acting as unregistered securities brokers, and breaching their fiduciary duties as investment advisers by failing to disclose to clients financial conflicts of interests. Langemeier convinced many of their clients to liquidate relatively conservative investments, transfer their funds to self-directed IRAs, and purchase securities in risky and unregistered oil and gas securities offerings. Langemeier received hundreds of thousands of dollars in undisclosed compensation in the form of sales commissions when her clients purchased the oil and gas securities and that she held undisclosed equity interests in certain of the issuers of the securities. The matter is being litigated. https://www.sec.gov/litigation/litreleases/2022/lr25425.htm
6. On June 14, 2022, the SEC instituted administrative proceedings against Energy Capital Partners Management, LP (“ECP”). The proceedings arise from ECP undisclosed, disproportionate allocation of certain deal-related expenses to a private equity fund it advises. ECP reached an agreement with a consortium of third-party equity co-investors that the co-investors would not have to bear expenses related to a credit facility used to finance the transaction. ECP allocated a disproportionate share of these expenses to an acquisition entity acting on behalf of its fund, without disclosing to the fund or its Limited Partner Advisory Committee prior to the transaction that the fund would bear a proportion of these deal-related expenses in excess of its investment allocation. ECP also failed to implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act. ECP was ordered to pay a whopping civil money penalty in the amount of $1,000,000. https://www.sec.gov/litigation/admin/2022/ia-6049.pdf
7. On June 14, 2022, the SEC instituted administrative proceedings against Weiss Asset Management LP (“WAM”). The proceedings concern seven violations of Rule 105 of Regulation M of the Exchange Act. WAM sold stock short within Rule 105’s restricted period and then purchased shares of the same stock in a covered offering without qualifying for an exemption, thereby violating Rule 105. WAM’s conduct resulted in ill-gotten gains of $6,508,792.81. WAM was ordered to pay disgorgement of $6,508,792, prejudgment interest of $190,210 and a civil money penalty of $200,000. https://www.sec.gov/litigation/admin/2022/34-95099.pdf
8. On June 14, 2022, the SEC filed a civil action against Michael Mooney, Britt Wright, and Penny Flippen in connection with their participation in a Ponzi scheme that raised more than $110 million from over 400 investors. Many of the defendants’ clients were elderly and inexperienced investors who communicated that they wanted safe investment opportunities for their assets, a large percentage of which were earmarked for retirement. Mooney, Wright, and Flippen each received undisclosed compensation , recommended that their clients invest in the fund based solely on unsubstantiated claims about investment objectives, source of returns, and operations. Mooney, Wright, and Flippen ignored significant red flags, such as Woods instructing the defendants not to use their Southport email addresses when communicating about Horizon. Mooney, Wright, and Flippen falsely told their clients that Horizon would use the funds they invested to purchase safe investments; that Horizon would pay them a guaranteed rate of return; and that they could get their principal back without penalty. Horizon earned very few profits from investments, and investor proceeds were used primarily to make principal and interest payments to earlier Horizon investors and to fund Woods’ personal projects, such as his purchase of a minor league baseball team. The matter is being litigated. https://www.sec.gov/litigation/litreleases/2022/lr25420.htm
9. On June 13, 2022, the SEC instituted administrative proceedings against Charles Schwab Corporation. Charles Schwab made false and misleading statements in their Form ADV filings about the cash component of their robo-adviser service, Schwab Intelligent Portfolios (“SIP”). Each of SIP’s model portfolios held between 6% and 29.4% of clients’ assets in cash. The amount of cash that each SIP model portfolio contained was pre-set so that Charles Schwab affiliate bank would earn at least a minimum amount of revenue from the spread on the cash by loaning out the money. Charles Schwab did not charge investors an advisory fee for the SIP service. Charles Schwab did not disclose that, under market conditions where other assets such as equities outperform cash, the cash allocations in the investors’ portfolios would lower clients’ returns by approximately the same amount as an advisory fee would have. Charles Schwab was ordered to pay a whooping civil money penalty in the amount of $186,536,861. https://www.sec.gov/litigation/admin/2022/34-95087.pdf
10. On June 9, 2022, the SEC announced charges against A.G. Morgan Financial Advisors, LLC, Vincent Camarda and James McArthur for unlawfully offering and selling securities in connection with a more than $500 million unregistered fraudulent offering with lending company Complete Business Solutions Group Inc. d/b/a Par Funding. The SEC previously charged Par Funding and others with operating a fraudulent scheme that raised hundreds of millions of dollars from investors nationwide. The defendants raised more than $75 million from more than 200 investors in connection with Par Funding’s unregistered securities offering and received compensation of more than $7 million for doing so. The defendants offered and sold securities to investors without approval from the registered broker-dealer with whom they were associated. AGM and Camarda failed to inform advisory clients that AGM had borrowed, and had not fully repaid, approximately $750,000 from Par Funding. This matter is being litigated. https://www.sec.gov/litigation/litreleases/2022/lr25418.htm
11. On June 9, 2022, the SEC entered its final judgment and a permanent injunction against Patrick Churchville for defrauding the funds they advised as well as the investors in those funds. Churchville’s and ClearPath’s fraudulent conduct caused at least $27 million in losses to the private funds they advised and controlled. Churchville and ClearPath misallocated and misappropriated investor assets, used fund assets to secure undisclosed borrowing that they repaid with monies due to investors, stole approximately $2.5 million of investors’ funds to purchase Churchville’s waterfront home, and engaged in a multi-million dollar Ponzi scheme, using investor money to pay off a series of prior investments. The final judgment also orders Churchville to pay $29,103,738 in disgorgement and $4,577,810 in prejudgment interest, as well as a $225,000 civil penalty. https://www.sec.gov/litigation/litreleases/2022/lr25417.htm
12. On June 7, 2022, the SEC instituted administrative proceedings against Trust Advisory Group, Ltd. The proceedings arise from TAG’s breach of fiduciary duty to its advisory clients in connection with its affiliated broker-dealer’s receipt of revenue resulting from advisory clients’ assets in cash sweep products. TAG’s affiliated broker-dealer, AGES Financial Services, Ltd. received revenue sharing payments from its clearing broker for Trust Advisory Group’s clients’ assets in cash sweep products, including money market mutual funds and FDIC-insured bank deposit accounts. TAG failed to provide full and fair disclosure of this revenue sharing and the resulting conflicts of interest. TAG failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder related to its disclosure of cash sweep revenue sharing and the associated conflicts of interest. TAG was ordered to pay a civil money penalty in the amount of $214,460. https://www.sec.gov/litigation/admin/2022/ia-6046.pdf
13. On June 6, 2022, the SEC instituted administrative proceedings against Kahn Brothers Advisors, LLC and Thomas Kahn. This matter primarily concerns misstatements and omissions by registered investment adviser KIA and Kahn to KIA advisory clients and prospective clients relating to brokerage services provided by KIA’s affiliated broker-dealer, Kahn Brothers LLC. 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 violation of the Advisers Act and its rules. Kahn was responsible for all aspects of KIA’s compliance program and its implementation as well as the firm’s disclosure obligations. KIA and Kahn was ordered to pay a civil money penalty in the amount of $250,000. https://www.sec.gov/litigation/admin/2022/34-95045.pdf
14. On June 6, 2022, the SEC instituted administrative proceedings against Adirondack Financial Services Corp (“AFSC”) for failing to file with the Commission and post on its website its SEC Form CRS. AFSC was required to file its initial Form CRS with the Commission as Part 3 of its Form ADV and post its Form CRS on its website. AFSC was ordered to pay a civil money penalty in the amount of $25,000. https://www.sec.gov/litigation/admin/2022/ia-6041.pdf
15. On June 2, 2022, the SEC announced charges against Jennifer Campbell, former Chief Compliance Officer of Wells Fargo, in connection of misappropriation of client funds. Campbell misused her access to client accounts to modify account settings which then allowed her to misappropriate funds from client accounts through fraudulent checks and wire transfers. Campbell also executed unauthorized securities transactions to generate cash that she then misappropriated. Campbell went to great lengths to avoid detection, including creating fake documents, hacking into her colleagues’ email accounts and even using voice-altering software to impersonate her colleague on the phone. Campbell misappropriated approximately $483,000 from a number of client accounts including those related to elderly individuals and deceased individuals who had left assets in trusts. This matter is being litigated. The U.S. Attorney’s Office for the Western District of New York announced parallel criminal charges against Campbell, charging her with wire fraud and aggravated identity theft. https://www.sec.gov/litigation/litreleases/2022/lr25408.htm
16. On June 2, 2022, the SEC instituted administrative proceedings against Richard Duncan, an investment advisory representative with Ausdal Financial Partners, for defrauding two advisory clients who were retail investors by persuading them to invest over $300,000 in an apparent scam. Duncan breached his fiduciary duty to his clients by failing to disclose material facts, including his conflict of interest in a Turkish investment and concealing unambiguous scam warnings from two banks regarding the investment. Duncan breached his fiduciary duty of due care to his clients by failing to investigate the legitimacy of the Turkish investment and failing to provide investment advice in his clients’ best interest. The matter is being litigated. Notably, the firm was not charged. https://www.sec.gov/litigation/admin/2022/34-95023.pdf