Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission today
announced the second-largest trading suspension in agency history as it continues its
“Operation Shell Expel” crackdown against the manipulation of microcap shell
companies that are ripe for fraud as they lay dormant in the over-the-counter
market. FULL STORY>>
Newscast Media DALLAS—The Securities and Exchange Commission today announced fraud charges and an asset freeze against a trader at a Dallas-based investment advisory firm who improperly profited by placing his own trades before executing large block trades for firm clients that had strong potential to increase the stock’s price.
The SEC alleges that Daniel Bergin, a senior equity trader at Cushing MLP Asset Management, secretly executed hundreds of trades through his wife’s accounts in a practice known as front running. Bergin illicitly profited by at least $520,000 by routinely purchasing securities in his wife’s accounts earlier the same day he placed much larger orders for the same securities on behalf of firm clients. Bergin concealed is lucrative trading by failing to disclose his wife’s accounts to the firm and avoiding pre-clearance of his trades in those accounts. Bergin also attempted to hide his wife’s accounts from SEC examiners.
“Bergin betrayed the trust of his clients by secretly using information about their trades to gain an unfair trading advantage and reap massive profits for himself,” said Marshall S. Sprung, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit.
According to the SEC’s complaint filed yesterday in federal court in Dallas, many investment advisers to institutions employ traders to manage their exposure to market price risks and place these large client orders in advantageous market centers with sufficient trading quantities that minimize unfavorable price movements against client interests. Bergin is the trader primarily responsible for managing price exposures related to client orders for equity trades.
“Bergin’s misconduct is particularly egregious because his firm depended on him to manage market exposure and risk for its investments. Instead, he pitted his clients’ financial interests against his own,” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office.
The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of Texas and the Federal Bureau of Investigation.
Newscast Media WASHINGTON—The Securities and Exchange Commission has charged the gatekeepers of a pair of mutual fund trusts with causing untrue or misleading disclosures about the factors they considered when approving or renewing investment advisory contracts on behalf of shareholders.
The five trustees named in the SEC enforcement action are: Michael Miola of Arizona, Lester M. Bryan of Utah, Anthony J. Hertl of Florida, Gary W. Lanzen of Nevada, and Mark H. Taylor of Ohio.
Some trusts are created as turnkey mutual fund operations that launch numerous funds to be managed by different unaffiliated advisers and overseen by a single board of trustees. The federal securities laws require all mutual fund directors to evaluate and approve a fund’s contract with its investment adviser, and the funds must report back to shareholders about the material factors considered by the directors in making these decisions. The SEC Enforcement Division’s Asset Management Unit has been fee arrangements in the fund industry.
An SEC investigation that arose from an examination of the Northern Lights Fund Trust and the Northern Lights Variable Trust found that some of the trusts’ shareholder reports either misrepresented material information considered by the trustees or omitted material information about how they evaluated certain factors in reaching their decisions on behalf of the funds and their shareholders. The trustees and the trusts’ chief compliance officer Northern Lights Compliance Services (NLCS) were responsible for causing violations of the SEC’s compliance rule, and the trusts’ fund administrator Gemini Fund Services (GFS) caused violations of the Investment Company Act recordkeeping and reporting provisions.
The firms and the trustees have agreed to settle the SEC’s charges.
“Determining the terms of the investment advisory contract, especially compensation of the adviser, is one of the most critical duties of a mutual fund board,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. “We will aggressively enforce investors’ rights to accurate and complete information about the board’s process and decision-making.”
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission today charged a former employee at a Connecticut-based brokerage firm with scheming to personally profit from placing unauthorized orders to buy Apple stock. When the scheme backfired, it ultimately caused the firm to cease operations. David Miller, an institutional sales trader who lives in Rockville Centre, N.Y., has agreed to a partial settlement of the SEC’s charges. He also pleaded guilty today in a parallel criminal case.
The SEC alleges that Miller misrepresented to Rochdale Securities LLC that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase just 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion. Miller planned to share in the customer’s profit if Apple’s stock profited, and if the stock decreased he would claim that he erred on the size of the order. The stock wound up decreasing after an earnings announcement later that day, and Rochdale was forced to cease operations in the wake of covering the losses suffered from the rogue trades.
“Miller’s scheme was deliberate, brazen, and ultimately ill-conceived,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit. “This is a wake-up call to the brokerage industry that the unchecked conduct of even a single individual in a position of trust can pose grave risks to a firm and potentially to the markets and investors.”
According to the SEC’s complaint filed in federal court in Connecticut, Miller entered purchase orders for 1.625 million shares of Apple stock on Oct. 25, 2012, with the company’s earnings announcement expected later that day. His plan was to share in the customer’s profit from selling the shares if Apple’s stock price increased.
Alternatively, if Apple’s stock price decreased, Miller planned to claim that he inadvertently misinterpreted the size of the customer’s order, and Rochdale would then take responsibility for the unauthorized purchase and suffer the losses.
Newscast Media WASHINGTON— The Securities and Exchange Commission today charged a California-based lawyer who has been fraudulently churning out baseless legal opinion letters for penny stocks through his website without researching and evaluating the individual stock offerings.
Legal opinion letters are issued to transfer agents on behalf of holders of restricted stock seeking to sell the stock freely in the public markets. Transfer agents typically require a lawyer’s opinion explaining the legal basis for lifting the restriction on the stock and allowing it to be freely traded.
The SEC alleges that Brian Reiss of Huntington Beach, Calif., set up 144letters.com to promote his legal opinion letter business and advertise “volume discount” rates while noting “penny stocks not a problem.” Reiss steered potential customers to his website by making bids on search terms through Google’s AdWords, and then relied on a computer-generated template to draft his opinion letters within minutes absent any true analysis of the facts behind each stock offering. The letters from Reiss ultimately made false and misleading statements and facilitated the sale of securities in violation of the registration provisions of the federal securities laws.
“Reiss flouted his responsibilities as a gatekeeper in the issuance of stock, and churned out opinion letters to make a quick buck,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Attorneys who act as gatekeepers in our markets have a solemn responsibility to ensure that they provide accurate information to the marketplace.”
The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).
Newscast Media WASHINGTON, DC—The Securities and Exchange Commission announced charges and an asset freeze against an individual living in Illinois and two companies behind an investment scheme defrauding foreign investors seeking profitable returns and a legal path to U.S. residency through a federal visa program.
The SEC alleges that Anshoo R. Sethi created A Chicago Convention Center (ACCC) and Intercontinental Regional Center Trust of Chicago (IRCTC) and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China.
“Sethi orchestrated an elaborate scheme and exploited these investors’ dream of earning legal U.S. residence along with a positive return on their investment in a project that was not nearly the done deal that he portrayed,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement. “The good news is that working closely with USCIS, we intervened early and stopped him from getting very
far, and the asset freeze preserves nearly all of the money invested.”
The SEC alleges that Sethi and his companies falsely boasted to investors that they had acquired all the necessary building permits and that several major hotel chains had signed onto the project. They also provided falsified documents to U.S. Citizenship and Immigration Services (USCIS) — the federal agency that administers the EB-5 program — in an attempt to secure the agency’s preliminary approval of the
project and investors’ provisional visas.
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission charged a former executive at New York-based broker-dealer Jefferies & Co. with defrauding investors while selling mortgage-backed securities (MBS) in the wake of the financial crisis so he could generate additional revenue for his firm.
According to the SEC’s complaint filed in federal court in Connecticut, Jesse Litvak arranged trades for customers as part of his job as a managing director on the MBS desk at Jefferies. Litvak would buy a MBS from one customer and sell it to another customer, but on many occasions he lied about the price at which his firm had bought the MBS so he could re-sell it to the other customer at a higher price and
keep more money for the firm. On other occasions, Litvak misled purchasers by creating a fictional seller to purport that he was arranging a MBS trade between customers when in reality he was just selling MBS out of his firm’s inventory at a higher price. Because MBS are generally illiquid and difficult to price, it is particularly important for brokers to provide honest and accurate information.
The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit. His misconduct helped him improve his own standing at the firm, as his bonuses were determined in part by the amount of revenue he generated for the firm.
“Brokers must always tell their customers the truth, particularly in complex securities transactions in which it is difficult for investors to determine market prices on their own,” said George Canellos, Deputy Director of the SEC’s Division of Enforcement.
“Litvak repeatedly lied to his customers and invented facts to bring additional profits into his firm and ultimately his own pocket at their expense.”
The SEC’s complaint charges Litvak with violating the antifraud provisions of the federal securities laws, particularly Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission today charged four securities industry professionals with conducting a fraudulent penny stock scheme in which they illegally acquired more than one billion unregistered shares in microcap companies at deep discounts and then dumped them on the market for approximately $17 million in illicit profits while claiming bogus exemptions from the federal securities laws.
The SEC alleges that Danny Garber, Michael Manis, Kenneth Yellin, and Jordan Feinstein acquired shares at about 30 to 60 percent off the market price by misrepresenting to the penny stock companies that they intended to hold the shares for investment purposes rather than immediately re-selling them. Instead, they immediately sold the shares without registering them by purporting to rely on an exemption for transactions that are in compliance with certain types of state law exemptions.
However, no such state law exemptions were applicable to their transactions. To create the appearance that the claimed exemption was valid, they created virtual corporate presences in Minnesota, Texas, and Delaware. The SEC also charged 12 entities that they operated in connection with the scheme.
The SEC’s complaint alleges that Garber, Manis, Yellin, Feinstein and the named entities violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC’s complaint seeks a final judgment, among other things, ordering all of the defendants to pay disgorgement, prejudgment interest and financial penalties; permanently enjoining all the defendants from future violations of the securities laws; and permanently enjoining all the defendants from participating in penny stock offerings.
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission announced insider trading charges against a Brazilian ex-banker for his role in a scheme to illegally trade Burger King securities. The SEC alleges that Igor Cornelsen and his firm through which he made trades – Bainbridge Group – reaped illicit profits of more than $1.68 million by trading Burger King options based on confidential information ahead of the company’s September 2010 announcement that it was being acquired by a New York private equity firm.
Cornelsen is now a resident of the Bahamas with a home in South Florida after holding high-ranking positions at several banks in Brazil before his retirement. He sought inside information from his broker Waldyr Da Silva Prado Neto by sending him e-mails with such masked references as, “Is the sandwich deal going to happen?” Prado was stealing the inside information from another Wells Fargo brokerage customer involved in the Burger King deal.
Cornelsen and Bainbridge Group agreed to pay more than $5.1 million to settle the SEC’s charges. The settlement is subject to court approval. The litigation continues against Prado, whose assets have been frozen by the court.
“Cornelsen shamelessly prodded Prado for details on ‘the sandwich deal’ and Prado happily obliged to satisfy his customer’s appetite for inside information,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit and Director of the Philadelphia Regional Office.
Sanjay Wadhwa, Deputy Chief of the Market Abuse Unit and Associate Director of the New York Regional Office, added, “Foreign investors who access the U.S. capital markets must play by the rules and not rig the market in their favor, otherwise they face getting caught by the SEC and paying a hefty price as Cornelsen is here.”
Newscast Media HOUSTON, Texas—Before I conclude this series, I would like to explain what a forensic audit is. A true forensic audit on any property will tell you if the underlying debt obligation was securitized and who the “holder in due course” or holder of the debt obligation is. If a property was purchased in cash, a forensic audit can still be done, because banks are known to seize properties that were paid in cash due to a broken chain of assignments, that led to a broken chain of title. It is important therefore even with a paid off property to make sure you have what is referred to as a clear title. Read this story about how a court authorized the house sale of a man in Florida who had paid cash and had no mortgage.
A clear title has no encumbrance on it, because prior to the sale of the property, the lien was perfected, or there were absolutely no clouds on the title. A perfected lien is one where the person who holds the deed of trust, also holds the note. If by any chance the person who holds or held the deed of trust is or was different from the one who holds or held the note, then you have a defect in title that can never be cured, because both instruments traveled on divergent paths. Even if you paid cash for it, someone five or ten years down the road who knows about the Law of Mortgages and trust law, can come back and sue for a “fraudulent conveyance.” For now, I will just stick to the topic of the Department of Justice and the SEC, including what I discovered during a forensic audit on some property.
After my investigative research was complete, I demonstrated using charts, that several SEC violations happened and trust laws were broken, and that the true owner of the securitized debt obligation was the Depository Trust Company the nominee of whom is CEDE & Company. The judge got scared and immediately sealed the case. In the end the bank walked away from the property out of fear of being charged with fraud by the SEC under Section 17(a)(2) of the Securities Act of 1933 that states:
“It shall be unlawful for any person in the offer or sale of any securities or security-based swap agreement to obtain money or property by means of any untrue statement of a material fact.”
The untrue statements in this case were the ones the bank’s attorneys uttered in the court record, claiming the bank owned the debt obligation, and using those statements to unlawfully obtain a piece a property, and legal fees (money) as a result of representing the banks.
Also 17 C.F.R section 240.10b-5 states: “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
Because the Justice Department and the Securities and Exchange Commission know that military agents ultimately have the last word in these cases, and because such cases are very sophisticated even for experienced judges, who last went to school in the 70s or 80s before the creation of the Collateralized Debt Obligations in form of mortgage-backed securities, the SEC and DOJ are laying out the fraud and violations before these multi-national corporations, and are succeeding in settling out of court.
You probably are thinking how these military Judge Advocate Generals can control the outcome of a case if it is a trial by jury. Before a case goes to trial, the judge will determine whether it is frivolous, whether you have standing, whether there is enough evidence, and if he or she dismisses it, and it never goes to trial, hasn’t the judge controlled the outcome? We see criminal charges being dropped everyday because there was a mishandling in the chain of evidence or a witness disappeared, and such criminal cases remain unsolved and untried. We also see civil cases being dismissed for failure to state a claim under which relief may be granted, or lack of subject matter or jurisdiction. Isn’t the judge controlling the outcome?
Even when it does finally go to trial, we always hear about “mistrials” happening because of a “procedural” defect, technicality or one side files a “voluntary withdrawal” because the evidence is questionable. It only takes one stubborn juror to create a hung jury even when there is clear and convincing evidence that a crime was committed. If conviction requires a 10-2 vote and it is 9-2, that one juror can make the case go one way or the other, resulting in a mistrial or conviction.
In his farewell speech in January 1961 President Eisenhower warned us of the military industrial complex because of the potential of misplaced powers. Watch:
In the very last sentence, Eisenhower was talking about the military that secretly controls the outcome of every case: “The total influence, economic, political, even spiritual, is felt in every city, every state house, every office of the federal government. We must never let the weight of this combination
(Military Industrial Complex) endanger our liberties or democratic processes.”
Obama knows what is going on in the courts, being a lawyer himself. He knows the military flag is in every courtroom and church for a reason. He, together with the SEC are not taking any chances so they are winning cases outside court, before they even enter the courts. I believe the only reason John G. Roberts flipped and voted for Obamacare was maybe Obama had some dirt on him, like a tape or photos.
Secondly, companies are willing to settle outside court because they know that the shareholders and investors might start filing class action lawsuits and the prolonged litigation would definitely damage the company’s bottom line. The third and perhaps most important reason is the corporations do not want the IRS breathing down their necks. It would be hard to succeed against these federal alphabet agencies namely: the DOJ, SEC, IRS and risk also having the FBI join the party and start investigating criminal behavior of corporate executives. Right there you are going into RICO territory, and who wants that?
Above all, Obama’s Department of Justice and the SEC have succeeded in winning outside the courts, by getting off-the-record confessions after doing internal investigations with the help of whistleblowers, and offering immunity to corporations and executives who acknowledge that violations were made, but don’t have to admit to any wrongdoing.
How come you never hear the media tell people that every court is a profit-making business whose primary function is to sell securites in form of bundled up surety bonds on the secondary market? Because the corporate media is owned by the very corporations that trade the bonds and securities.
Newscast Media ATLANTA, Ga—The Securities and Exchange Commission announced charges against a private fund manager and his Atlanta-based investment advisory firm for defrauding investors in a purported “fund-of-funds” and then trying to hide trading losses by creating new private funds to make money to pay back the original fund investors in Ponzi-like fashion.
The SEC is seeking an emergency court order to freeze the assets of Angelo A. Alleca and Summit Wealth Management Inc. and prevent further investor losses, which are estimated to be $17 million among approximately 200 clients.
“Alleca told Summit Wealth clients that he was investing their money in funds, but instead he was rolling the dice in the stock market without success,” said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. “Rather than fess up about his trading losses, Alleca tried a cover up by creating new funds. Instead of winning back the money, he just compounded his fraud by suffering further losses.”
After receiving a tip, the SEC initiated an examination of Summit Wealth. As SEC examiners noticed something was amiss at the firm, they immediately coordinated with SEC enforcement attorneys to gather and assess evidence.
“SEC examiners and attorneys acted swiftly after receiving a tip about possible wrongdoing at the firm, and have mounted an aggressive effort to put a stop to Alleca’s fraud before more investors are harmed,” said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office.
According to the SEC’s complaint filed late yesterday in federal court in Atlanta, Alleca and Summit Wealth Management offered and sold interests in Summit Fund, which they told their clients was operating as a fund-of-funds – meaning they were investing their money in other funds and investment products rather than directly in stocks and other securities.
The SEC’s complaint charges Alleca, Summit Wealth Management, and the three funds with violations of the antifraud provisions of the federal securities laws.
Newscast Media WASHINGTON, D.C.—A whistleblower who helped the Securities and Exchange Commission stop a multi-million dollar fraud will receive nearly $50,000 — the first payout from a new SEC program to reward people who provide evidence of securities fraud.
The award represents 30 percent of the amount collected in an SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed by the whistleblower law.
“The whistleblower program is already becoming a success,” said SEC Chairman Mary L. Schapiro, who advocated for the program. “We’re seeing high-quality tips that are saving our investigators substantial time and resources.”
The award recipient, who does not wish to be identified, provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims. The whistleblower’s assistance led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. The court is considering whether to issue a final judgment against other defendants in the matter. Any increase in the sanctions ordered and collected will increase payments to the whistleblower.
“This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.”
The SEC did not approve a claim from a second individual seeking an award in this matter because the information provided did not lead to or significantly contribute to the SEC’s enforcement action, as required for an award.
The 2010 Dodd-Frank Act authorized the whistleblower program to reward individuals who offer high-quality original information that leads to an SEC enforcement action in which more than $1 million in sanctions is ordered. Awards can range from 10 percent to 30 percent of the money collected.
The Dodd-Frank Act included enhanced anti-retaliation employment protections for whistleblowers and provisions to protect their identity. The law specifies that the SEC cannot disclose any information, including information the whistleblower provided to the SEC, which could reasonably be expected to directly or indirectly reveal a whistleblower’s identity.
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission has charged 14 sales agents who misled investors and illegally sold securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.
The SEC alleges that the sales agents — which include four sets of siblings — falsely promised investor returns as high as 12 to 14 percent in several weeks when they sold investments offered by Agape World Inc. They also misled investors to believe that only 1 percent of their principal was at risk. The Agape securities they peddled were actually non-existent, and investors were merely lured into a Ponzi scheme
where earlier investors were paid with new investor funds.
The sales agents turned a blind eye to red flags of fraud and sold the investments without hesitation, receiving more than $52 million in commissions and payments out of investor funds. None of these sales agents were registered with the SEC to sell securities, nor were they associated with a registered broker or dealer. Agape also was not registered with the SEC.
“This Ponzi scheme spread like wildfire through Long Island’s middle-class communities because this small group of individuals blindly promoted the offerings as particularly safe and profitable,” said Andrew M. Calamari, Acting Regional Director for the SEC’s New York Regional Office. “These sales agents raked in commissions without regard for investors or any apparent concern for Agape’s financial distress and inability to meet investor redemptions.”
According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, more than 5,000 investors nationwide were impacted by the scheme that lasted from 2005 to January 2009, when Agape’s president and organizer of the scheme Nicholas J. Cosmo was arrested. He was later sentenced to
300 months in prison and ordered to pay more than $179 million in restitution. The SEC alleges that the sales agents misrepresented to investors that their money would be used to make high-interest bridge loans to commercial borrowers or businesses that accepted credit cards. Little, if any, investor money actually went
toward this purpose. Investor funds were instead used for Ponzi scheme payments and the agents’ sales commissions, and Cosmo lost $80 million while trading futures in personal accounts.
The SEC’s complaint charges the following sales agents:
* Brothers Bryan Arias and Hugo A. Arias of Maspeth, N.Y., who offered and
sold Agape securities to at least 195 and 1,419 investors respectively. They
received more than $9.5 million combined in commissions and payments.
* Brothers Anthony C. Ciccone of Locust Valley, N.Y. and Salvatore Ciccone
of Maspeth, N.Y., who offered and sold Agape securities to at least 535 and
348 investors respectively. They received more than $17 million combined in
commissions and payments.
* Brothers Jason A. Keryc of Wantagh, N.Y. and Michael D. Keryc of Baldwin,
N.Y. Jason Keryc offered and sold Agape securities to at least 1,617 investors
and received at least $16 million in commissions and payments. He also paid
sub-brokers, including his brother, at least $7.4 million to sell Agape securities
for him. Michael Keryc offered and sold Agape securities to at least 177
investors and received more than $1 million in commissions and payments.
* Siblings Martin C. Hartmann III of Massapequa, N.Y. and Laura Ann Tordy of
Wantagh, N.Y. Hartmann enlisted his sister in his sales effort while he worked
as a sub-broker for Jason Keryc. Hartmann and Tordy offered and sold Agape
securities to at least 441 investors and received more than $3.5 million in
commissions and payments.
* Christopher E. Curran of Amityville, N.Y., who worked as a sub-broker for
Keryc. Curran offered and sold Agape securities to at least 132 investors and
received at least $531,890 in commissions and payments.
* Ryan K. Dunaske of Ronkonkoma, N.Y., who worked as a sub-broker for Keryc.
Dunaske offered and sold Agape securities to at least 70 investors and
received more than $700,000 in commissions and payments.
* Michael P. Dunne of Massapequa, N.Y., who worked as a sub-broker for
Keryc. Dunne offered and sold Agape securities to at least 99 investors and
received more than $1.5 million in commissions and payments.
* Diane Kaylor of Bethpage, N.Y., who offered and sold Agape securities to at
least 249 investors and received at least $3.7 million in commissions and
* Anthony Massaro of Boynton Beach, Fla., who offered and sold Agape
securities to at least 826 investors and received more than $5.9 million in
commissions and payments.
* Ronald R. Roaldsen, Jr. of Wantagh, N.Y., who worked as a sub-broker for
Keryc. Roaldsen offered and sold Agape securities to at least 159 investors and
received more than $600,000 in commissions and payments.
The SEC’s complaint charges Bryan and Hugo Arias, Anthony and Salvatore Ciccone, Jason and Michael Keryc, Dunne, Hartmann, Kaylor, Massaro, and Tordy with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint charges all 14 defendants with violations of Section 15(a) of the Exchange Act, and Sections 5(a) and 5(c) of the Securities Act.
Newscast Media NEW YORK—The Securities and Exchange Commission today announced charges against a New York-based fund manager and his two firms for luring investors into a trading program that would purportedly maximize their profits but instead spent their money in unauthorized ways.
The SEC alleges that since at least November 2011, Jason J. Konior and his firms raised approximately $11 million by selling investors limited partnership interests in Absolute Fund LP, an investment vehicle that Konior claimed had $220 million in trading capital. Konior and his firms falsely claimed that Absolute Fund would allocate millions of dollars in matching investment funds, place the combined funds in brokerage accounts through which investors could trade securities, and operate a “first loss” trading program that would allow investors to dramatically increase their potential profits.
However, the SEC alleges that instead of using investor funds for trading purposes, Konior and his firms Absolute Fund Advisors (AFA) and Absolute Fund Management (AFM) siphoned off approximately $2 million of the proceeds to pay redemptions from earlier investors and to pay their personal and business expenses.
The SEC obtained an asset freeze against Konior and his companies late yesterday in federal court in Manhattan.
“Konior falsely portrayed Absolute Fund as a legitimate investment vehicle designed to maximize investors’ access to trading capital in order to grow their hedge fund businesses,” said Bruce Karpati, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “In reality, Konior’s operation became a way for Konior to funnel cash to his firms and himself for unauthorized purposes.”
The SEC alleges that Absolute Fund did not actually operate the first loss trading program as promised for these investors. Absolute Fund also did not provide these investors with any matching funds or satisfy investor demands for returns of their capital contribution. You may read or download the case here.
Newscast Media NEW YORK—The Securities and Exchange Commission charged a former executive at Yahoo! Inc. and a former mutual fund manager at a subsidiary of Ameriprise Financial Inc. with insider trading on confidential information about a search engine partnership between Yahoo and Microsoft Corporation.
The SEC alleges that Robert W. Kwok, who was Yahoo’s senior director of business management, breached his duty to the company when he told Reema D. Shah in July 2009 that a deal between Yahoo and Microsoft would be announced soon. Shah had reached out to Kwok amid market rumors of an impending partnership between the two companies, and Kwok told her the information was kept quiet at Yahoo and only a few people knew of the coming announcement. Based on Kwok’s illegal tip, Shah prompted the mutual funds she managed to buy more than 700,000 shares of Yahoo stock that were later sold for profits of approximately $389,000.
The SEC further alleges that a year earlier, the roles were reversed. Shah tipped Kwok with material nonpublic information about an impending acquisition announcement between two other companies. Kwok traded in a personal account based on the confidential information for profits of $4,754.
Kwok and Shah, who each live in California, have agreed to settle the SEC’s charges. Financial penalties and disgorgement will be determined by the court at a later date. Under the settlements, Shah will be permanently barred from the securities industry and Kwok will be permanently barred from serving as an officer or director of a public company.
“Kwok and Shah played a game of you scratch my back and I’ll scratch yours,” said Scott W. Friestad, Associate Director in the SEC’s Division of Enforcement. “When corporate executives and mutual fund professionals misuse their access to confidential information, they undermine the integrity of our markets and violate the trust placed in them by investors.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Shah and Kwok first met in January 2008 when Shah was attending a real estate conference in California at the same facility where Yahoo was holding a meeting. The two met in a hallway and began discussing their respective businesses, and thereafter they spoke frequently by phone or in person.
Kwok provided Shah with information about Yahoo, including whether Yahoo’s quarterly financial performance
was expected to be in line with market estimates. In return, Shah provided Kwok with information she learned in the course of her work, and he used it to help make his personal investment decisions. Both Shah and Kwok benefited from this exchange of information. Click here to read or download the SEC lawsuit.
Newscast Media WASHINGTON, D.C. —The Securities and Exchange Commission today announced that it charged Franklin Bank Corp.’s former chief executives for their involvement in a fraudulent scheme designed to conceal the deterioration of the bank’s loan portfolio and inflate its reported earnings during the financial crisis. The SEC alleges that former Franklin CEO Anthony J. Nocella and CFO J. Russell McCann used aggressive loan modification programs during the third and fourth quarters of 2007 to hide the true amount of Franklin’s non-performing loans and artificially boost its net income and earnings. The Houston-based bank holding company declared bankruptcy in 2008.
“Nocella and McCann used the loan modification scheme like a magic wand to change non-performing loans into performing assets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Their disclosure and accounting tricks misled investors into believing that Franklin was outperforming other banks during the height of the financial crisis.”
What the SEC means is that these banks sold “toxic assets” to investors in form of Mortgage-Backed Securities (MBS) that were pooled together into Trusts. The banks were first compensated through TARP (Troubled Assets Relief Program) money using billions of taxpayers’ money. They were also compensated a second time through insurance (credit default swaps), and the third compensation came through the stream of monthly payments by homeowners. The fourth compensation came when banks were unable to modify loans, and sold the homes at public auctions through foreclosure.
So these banks have earned money four-fold, and are not being held accountable. It seems the magic word is to add the word “bank” in a business name and one is virtually immune from being charged with illegal business practices. However, the SEC is slowly changing that, yet whether the courts will be willing to hold the banks accountable remains to be seen.
The SEC’s complaint filed in U.S. District Court for the Southern District of Texas seeks financial penalties, officer-and-director bars, and permanent injunctive relief against Nocella and McCann to enjoin them from future violations of the federal securities laws.
The SEC has a strong case under Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5]
15 USC § 78j(b) – Manipulative and deceptive devices states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
17 C.F.R. § 240.10b-5 states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
The securities banks deal with are Mortgage-Backed Securities (MBS). A company that engages in the business of investing, reinvesting, owning, holding, or trading in securities should abide by the Investment Company Act of 1940 also referred to as (15 USC § 80a–3) that requires any such business to be registered in order to conduct business.
Almost 100 percent of these banks that claim to be Trustees for XYZ Trust are operating illegally because the Trusts are defunct and do not exist. Unfortunately judges and attorneys seem to be unfamiliar or unwilling to learn about the securitization process, so one has to school them using charts, tables or
diagrams. The SEC is doing just that, and we should expect more diagrams to be provided at trial.
When fighting such cases involving banks claiming to be Trustees, acting on behalf of some Trust, one has to be willing to fight them all the way to the Supreme Court, since those justices are more knowledgeable in dealing with such complex laws.
For more information about this enforcement action, contact:
Regional Director, SEC’s Fort Worth Regional Office
Associate Regional Director, SEC’s Fort Worth Regional Office
Categories: News Tags: asset backed securities, bank mortgage fraud, collateralized debt obligations, credit default swap, derivatives, foreclosure fraud, mortgage backed securities, mortgage fraud, SEC, SEC investigations, SEC mortgage fraud
Newscast Media WASHINGTON, D.C. — The Securities and Exchange Commission today charged four former veteran investment bankers and traders at Credit Suisse Group for engaging in a complex scheme to fraudulently overstate the prices of $3 billion in subprime bonds during the height of the subprime credit crisis.
The SEC alleges that Credit Suisse’s former global head of structured credit trading Kareem Serageldin and former head of hedge trading David Higgs along with two mortgage bond traders deliberately ignored specific market information showing a sharp decline in the price of subprime bonds under the control of their group. They instead priced them in a way that allowed Credit Suisse to achieve fictional profits.
Serageldin and Higgs periodically directed the traders to change the bond prices in order to hit daily and monthly profit targets, cover up losses in other trading books, and send a message to senior management about their group’s profitability. The SEC alleges that the mispricing scheme was driven in part by these investment bankers’ desire for lavish year-end bonuses and, in the case of Serageldin, a promotion into the senior-most echelon of Credit Suisse’s investment banking unit.
“The stunning scale of the illegal mismarking in this case was surpassed only by the greed of the senior bankers behind the scheme,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “At precisely the moment investors and market participants were urgently seeking accurate information about financial institutions’ exposure to the subprime market, the senior bankers falsely and selfishly inflated the value of more than $3 billion in asset-backed securities in order to protect their bonuses and, in one case, protect a highly coveted promotion.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Serageldin oversaw a significant portion of Credit Suisse’s structured products and mortgage-related businesses. The traders reported to Higgs and Serageldin. As the subprime credit crisis accelerated in late 2007 and 2008, Serageldin frequently communicated to Higgs the specific profit & loss (P&L) outcome he wanted. Higgs in turn directed the traders to mark the book in a manner that would achieve the desired P&L. However, under the relevant accounting principles and Credit Suisse policy, the group was required to record the prices of these bonds to accurately reflect their fair value. Proper pricing would have reflected that Credit Suisse was incurring significant losses as the subprime market collapsed.
The SEC’s investigation, which is continuing, has been conducted by Staff Accountant Kenneth Gottlieb, Senior Counsel Kristine Zaleskas, Senior Specialized Examiner Michael Fioribello, Assistant Regional Director Michael Paley, and Assistant Regional Director Michael Osnato, Jr. in the SEC’s New York Regional Office. Senior Trial Counsel Howard Fischer will lead the SEC’s litigation efforts.
Guest article by Michael Olenik
Newscast Media — The pooling and servicing agreement (PSA) is a contract that should govern the terms under which trillions of dollars worth of equity in the land of the United States of America was flung around the world. These contracts should govern how disputes over ownership and interest in the land that was the United States of America should be resolved. Pretty simple stuff, right? I mean if I’m a millionaire big shot New York Lawyer working for big shot billionaire Wall Street Investors and banks, then I’d do my job as a lawyer to make sure the contract was right and that all the “is” were dotted and the “Ts” were crossed right?
But that’s not at all what’s happened. In our scraggly street level offices, far below the big fancy marble encased towers of American law and finance simple dirt lawyers defending homeowners started actually reading these contracts. We ask lots of questions about just what all those fancy words in their big shot contracts mean. Invariably, the big shot lawyers and the foreclosure mills tell us, “Don’t you worry about all them words you scraggly, simple dirt lawyer. Those words aren’t important to you.”
But increasingly judges recognize that the words really do mean something. Take note of the following statements from the recent Ibanez Ruling:
I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets.
The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally recognizable form before they exercised the power of sale that accompanies those assignments.
The Ibanez decision underscores the fact that it is important for all of us to know and understand how the pooling and servicing agreements directly impact what is occurring in the courtroom. And for assistance with understanding the PSA and how to find it, more commentary from Michael Olenick at Legalprise:
Overview of PSAs
Securitized loans are built into securities, which happen to look and function virtually identically to bonds but are categorized and called securities because of some legal restrictions on bonds that nobody seems to know about.
The securities start with one or more investment banks, called the Underwriter (should be called the Undertaker), that seems to disappear right after cashing in lots of fees. They create a prospectus that has different parts of the security that they are proposing. Each of these parts is called a tranche. There are anywhere from a half-dozen to a couple dozen tranches. Each one is considered riskier.
Each tranche is actually a separate sub-security, that can and is traded differently, but governed by the same PSA, listed in the Prospectus. Similar tranches from multiple loans were often bundled together into something called a Collateralized Debt Obligation, or CDO. So besides the MBS there might also be one or more CDOs made up of, say, one middle tranche of each MBS. Each tranche is considered riskier, usually based a combination of the Credit Scores of the people in the tranche and the type of loans (ex: full/partial/no doc, traditional/interest-only/neg am, first or secondary lien, etc…).
CDOs were eligible for a type of “insurance” in case their price went down called a Credit Default Swap, or CDS (also known as “synthetic CDOs). There was actually no need to own the CDO to buy the insurance and many companies purchased the insurance, that paid out handsomely. [That's what the AIG bailout was for, because they didn't keep adequate reserves to pay out the insurance policies.]
Later, investors could also purchase securities made up of multiple CDOs, much the same way that CDOs were made up of tranches of multiple MBSs. These were called “CDOs squared.” Not surprisingly, there were also a few “CDOs cubed, CDOs of CDOs squared. CDOs were virtually all written offshore so little is known about who owns them, except that they were premised on the idea that since there was
collateralized mortgage debt at their base they could not collapse. Their purpose was to spread the various of risks of mortgages which, back then, meant prepayment of high interest debt and default.
Investors were actually way more obsessed with prepayment because they thought the whole country could not default; to make sure of that MBSs and all their gobbly gook were spread around the country; you can see where in the prospectus. They were almost more concerned with geographic dispersion than
One warning on those secondary filings, servicers and trusts both break them out as assets. How one loan can be reported as an asset in two places is a mystery, but considering this doesn’t even cover the CDOs and CDSs dual reporting doesn’t seem to strange. You’ll see your loan keep wandering through the financial
system, with one exception (next paragraph), right up to the present day. You can even see how much the investment banks thinks that its worth over time since they report out both original amount and fair market value.
The exception – when your loan really does disappear – is when it was eaten up by the Federal Reserve’s Toxic Loan Asset Facility, TALF. But you can look that up to and see how the government purchased your loan for full-price, when investors on the open market were only willing to pay a few cents on the dollar. If
your loan went to TALF you can find it in the spreadsheet here:
Your loan will be in the top spreadsheet and the genuine lender in the bottom.
305 Puritan Rd.
W. Palm Beach, FL 33405
Categories: News Tags: CDS, collateralized debt obligations, credit default swaps, derivatives, how to find your pooling and servicing agreement, how to find your psa, MBS Trust, mortgage backed securities, pooling and servicing agreement, psa, REMIC, REMIC Trust, REMICs, SEC, securities and exchange commission, TARP, Toxic assets