Articles Tagged with SEC Complaint

On October 2, 2017, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Tweed Financial Services, Inc. (“TFSI”), an investment advisory firm, and its proprietor, Robert Russel Tweed (“Tweed”).  The SEC’s complaint alleges that TFSI and Tweed “defrauded their clients by misleading them about how their money had been invested and how poorly those investments were performing.”  According to the SEC, TFSI and Tweed violated the Investment Advisers Act of 1940 by deceiving their clients.

According to the SEC’s complaint, TFSI and Tweed formed Athenian Fund L.P., a private fund, in 2008.  Twenty-four investors placed money in the Athenian Fund, and the fund raised approximately $1.7 million.  The Athenian Fund’s private placement memorandum informed investors that money invested in Athenian Fund would be invested in a master fund that “had been established to trade stocks using an algorithmic trading platform developed by acquaintances of Tweed.”  However, beginning in March 2010, Tweed transferred all of the Athenian Fund’s assets to another fund.  In March 2011, TFSI and Tweed had the Athenian Fund loan $200,000 to a startup software company.  The SEC alleged that these two ventures resulted in the Athenian fund losing approximately $800,000. Continue reading

On August 14, 2017, the Securities and Exchange Commission (“SEC”) issued an Order Instituting Administrative and Cease and Desist Proceedings (“Order”) against Coachman Energy Partners, LLC (“Coachman”), an investment adviser, and its owner, Randall D. Kenworthy (“Kenworthy”).  According to the SEC’s Order, Coachman “failed to adequately disclose its methodology for calculating the management fees and management-related expenses it charged” to four oil and gas funds it managed.  Coachman and Kenworthy submitted offers of settlement in conjunction with the Order.

The SEC found that from 2011 to 2014, Coachman acted as investment adviser to four funds specializing in oil and gas operations.  Each fund was charged an annual management fee which made up 2 to 2.5% of the total capital contributions given to each fund as of the last day of the year.  According to the SEC, however, Coachman’s offering materials and Forms ADV did not adequately disclose that the management fees were based upon year-end contributions.  Rather, these documents implied that management fees and expenses were based upon “the average amount of capital contributions under management during the course of the year.”  Therefore, the SEC alleged that Coachman and Kenworthy overbilled investors in the amount of $1,128,916.

The SEC also alleged that between 2013 and 2014, Coachman billed two of the funds management expenses based upon 1.5% of the total capital contributions given to these funds as of the last day of the year.  However, the offering materials for these funds allegedly did not sufficiently inform investors that the funds would be obligated to pay Coachman for management expenses based on year-end capital contributions.  Rather, these materials supposedly informed investors that management expenses were calculated using the average number of capital contributions under management for the whole year.  The SEC alleges that this resulted in Coachman and Kenworthy overbilled clients in the amount of $449,294.

On August 23, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the District of Colorado against Sonya D. Camarco (“Camarco”), an investment adviser.  The complaint alleges that Camarco “misappropriated over $2.8 million in investor funds from her clients and customers.”  The complaint also alleges that Camarco used these funds to pay a variety of personal expenses, including credit card bills and mortgages.

As stated in the SEC’s complaint, Camarco was a registered representative and investment adviser representative of LPL Financial LLC (“LPL”) from February 2004 through August 2017.  Under LPL’s policies, Camarco was not allowed to take money from client accounts unless the clients given her “specific and express” authority to do so.  However, the SEC’s complaint alleges that in July 2017, LPL realized that Camarco had been part of numerous suspicious transactions involving her clients’ accounts from 2004 through 2017. Continue reading

On August 22, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Central District of California against Jeremy Drake (“Drake”), an investment adviser.  The complaint alleges that Drake lied to two clients, a high-profile professional athlete and his wife, regarding their annual management fees.  The complaint also alleges that Drake used extensive measures to back up his deception, including sending “false and misleading emails” and “a number of fabricated documents.”

According to the SEC’s complaint, Drake’s alleged misconduct occurred when he was an investment adviser representative of HCR Wealth Advisers (“HCR”), a Los Angeles-based registered investment adviser.  In September 2009, the clients entered into an “Investment Advisory Agreement” with HCR.  The agreement, which was signed by Drake on behalf of HCR, provided that the clients would pay an annual management fee of 1% of the clients’ assets under management.  Evidence shows that the clients paid a 1% management fee for the entire period when they were clients of HCR. Continue reading

On August 2, 2017, a federal court in Connecticut ordered Steven Hicks (“Hicks”), a hedge fund manager, and his hedge fund advisory firms to pay almost $13 million.  This payment includes disgorgement and a penalty.  In 2010, the Securities and Exchange Commission (“SEC”) filed a complaint against Hicks and his two hedge fund advisers, Southridge Capital Management LLC (“Southridge Capital”) and Southridge Advisors, LLC (“Southridge Advisors”).  The complaint alleged that Hicks, Southridge Capital, and Southridge Advisors committed fraud by placing investor money in illiquid securities when investors were told that “at least 75% of their money would be invested in unrestricted, free-trading shares.”

According to the SEC’s complaint, starting in 2003, Hicks started soliciting investors.  He told them that 75% of any money they invested in two funds he was starting would be invested in unrestricted, free-trading shares.  Free-trading shares are shares that are eligible to be sold.  Evidence shows that some potential investors were also told that the funds would invest “in short-term transactions that would take only 10 or 15 days, such as equity line of credit (‘ELC’) deals.”  Continue reading

On June 5, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Southern District of New York against Alpine Securities Corporation (“Alpine”), a Salt Lake City-based broker-dealer.  The complaint alleges that Alpine failed to file Suspicious Activity Reports (“SARs”) in the manner prescribed by the Bank Secrecy Act (“BSA”).  According to the SEC’s complaint, Alpine’s alleged misconduct “facilitated illicit actors’ evasion of scrutiny by U.S. regulators and law enforcement, and provided them with access to the markets they might otherwise have been denied.”

The BSA obligates a broker-dealer to file SARs with the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to report transactions that the broker-dealer knows or suspects involve funds obtained from illegal activities or that were used to conceal such activities.  Broker-dealers are also obligated, under the “SAR Rule” (31 C.F.R. § 1023.320), to file SARs if they know or suspect that a transaction’s purpose was to evade BSA obligations or that the transaction did not have an obvious business or lawful purpose.  Broker-dealers are also required to file SARs if they know or suspect that a transactions’ purpose is to instigate criminal activity.  In addition, both FinCEN, under the SAR Rule, and the Financial Industry Regulatory Authority (“FINRA”), under FINRA Rule 3310, require that broker-dealers establish and enforce anti-money laundering programs that are tailored to guarantee compliance with the BSA and its regulations.  Since Alpine was a FINRA-member firm, it was obligated to comply with FINRA’s rule regarding the adoption and enforcement of an anti-money laundering program.

The SEC alleged that while Alpine had adopted an anti-money laundering compliance program, it did not adequately put this compliance program into practice.  For example, evidence showed that Alpine’s records included information revealing incidents of “money laundering, securities fraud, or other illicit financial activities relating to [Alpine’s] customers and their transactions.”  These constituted so-called “material red flags” and were required to be reported in Alpine’s SARs.  However, the SEC alleged that at least 1,950 of Alpine’s SARs did not report these material red flags.  Evidence also showed that Alpine filed SARs on about 1,900 deposits of a security, but did not file SARs upon the subsequent liquidation of deposits.

On May 30, 2017, the United States District Court for the Eastern District of New York entered a final consent judgment against Marc D. Broidy (“Broidy”) and his investment advisory firm, Broidy Wealth Advisors, LLC (“BWA”).  The Securities and Exchange Commission (“SEC”) had filed a complaint alleging that Broidy and BWA “intentionally overbilled clients and used the excess fees to pay for, among other things, Broidy’s personal expenses.”  The complaint also alleged that Broidy converted assets from clients’ trusts, also for the purpose of paying personal expenses.

The SEC alleged that from about February 2011 to February 2016, Broidy and BWA overbilled approximately $643,000 in connection with advisory services to five clients.  The SEC also alleged that Broidy and BWA made conscious efforts to conceal the overbilling.  BWA’s Form ADV and Investment Advisory Contracts stated that clients would typically be billed anywhere from 1 percent to 1.5 percent of their assets under management on a quarterly basis.  However, Broidy and BWA charged clients significantly more than these percentages.  Continue reading

On May 24, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint against an options trading instructor and unregistered investment adviser, Gustavo A. Guzman (“Guzman”).  The complaint alleges that Guzman obtained more than $2.1 million from investors, assuring them that their funds would be invested in equity options and real estate.  However, evidence showed that Guzman misappropriated a third of the funds “and lost the remainder through his options trading while misleading existing or prospective investors.”

Guzman was not registered as an investment adviser with the SEC or any state authority.  However, he was tasked with managing investments in two private funds specializing in options trading and one real estate hedge fund.  He also received management fees for managing these funds.  As a result, Guzman met the definition of an investment adviser in the Investment Advisers Act of 1940 (“Advisers Act”) and was subject to its anti-fraud provisions. Continue reading

On May 4, 2017, the Securities and Exchange Commission (“SEC”) reached a settlement with Verto Capital Management, LLC (“Verto”), a New Jersey-based life settlement firm, and its CEO, William Schantz III (“Schantz”).  Verto and Schantz consented to pay the SEC about $4 million, which includes both disgorgement and a penalty, to settle claims that they used funds from new investors to pay older investors in a Ponzi-type manner.  The SEC also alleged that Verto and Schantz diverted investor funds for Schantz’s personal use.

The settlement resulted from a complaint filed by the SEC in the United States District Court for the District of New Jersey alleging that between November 2013 and November 2015 Verto and Schantz issued about $12.5 million worth of nine-month 7% promissory notes to investors.  Verto and Schantz claimed that the funds from these promissory notes would be used to purchase “life settlements,” which are life insurance policies that have been sold by their original owners to third-party buyers.  The SEC’s complaint alleges that Verto and Schantz made a variety of misrepresentations in the sale of these promissory notes. Continue reading

On April 17, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Southern District of New York against Justin D. Meadlin (“Meadlin”), an investment adviser, and Hyaline Capital Management, LLC (“Hyaline”), his advisory firm.  The complaint alleges that Meadlin and Hyaline made fraudulent misrepresentations and omitted material facts in order to “induce clients, and prospective investors… to invest funds with them.”  These actions caused them to be in violation of Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 under the Advisers Act.

The SEC’s complaint alleges that from September 2012 to April 2013, Meadlin sent emails that exaggerated the amount of Hyaline’s assets under management (“AUM”) to clients and prospective investors.  These emails provided that Hyaline had AUM that ranged from $17.5 million to $25 million.  In reality, however, Hyaline had only $5.5 million in AUM during the relevant time period.  Meadlin also sent emails that contained false statements pertaining to expected AUM. Continue reading