SEC ALLEGES CO-OWNERS OF BROKERAGE FIRM USED INVESTOR FUNDS INAPPROPRIATELY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

05/20/2015 01:00 PM EDT

The Securities and Exchange Commission today announced fraud charges against the co-owners of a Manhattan-based brokerage firm.

The SEC alleges that as Arjent LLC and its UK-based affiliate Arjent Limited were approaching insolvency, chairman and CEO Robert P. DePalo attempted to keep the firms afloat and maintain his extravagant lifestyle by selling shares in a holding company called Pangaea Trading Partners.  DePalo along with managing director and co-owner Joshua B. Gladtke allegedly misrepresented to investors the value of Pangaea’s assets and how their money would be used – transferring the first $2.3 million raised in the offering directly to his own bank accounts and using it for his personal benefit.  DePalo also allegedly transferred investor funds to Gladtke, and sought to cover up their fraud by making misrepresentations to SEC examiners.

“We allege that DePalo and Gladtke sold overvalued interests in Pangaea and then raided investor funds for their own personal benefit,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “They later allegedly falsified records in an effort to cover up their scheme.”

In a parallel action, the New York County District Attorney’s Office today announced criminal charges against DePalo and Gladtke.

The SEC’s complaint filed in federal court in Manhattan charges DePalo and Gladtke with violating the antifraud and books-and-records provisions of the federal securities laws.  Also charged in the SEC’s complaint are Pangaea, the Arjent entities, and another entity owned and controlled by DePalo called Excalibur Asset Management.  The SEC also charged another principal at Arjent LLC named Gregg A. Lerman, who agreed to settle the charges.  Subject to court approval, Lerman is enjoined from future violations with any disgorgement and financial penalty amounts to be determined by the court at a later date.

The SEC’s investigation was conducted by Andrew Dean, Kerri Palen, Nathaniel Kolodny, Bennett Ellenbogen, and Lara Mehraban in the New York Regional Office.  The case was supervised by Amelia A. Cottrell, and the SEC’s litigation will be led by Michael Birnbaum and Mr. Dean.  The examination that preceded the investigation was led by Steven Vitulano, Terrence Bohan, Doreen Piccirillo, and Frank Sze of the New York office.  The SEC appreciates the assistance of the New York County District Attorney’s Office, Financial Industry Regulatory Authority, Financial Conduct Authority in the United Kingdom, City of London Police, and Northumbria Police.

SEC ANNOUNCES FRAUD CHARGES AGAINST INVESTMENT ADVISORY FIRM AND CO-OWNERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

12/10/2014 01:30 PM EST

The Securities and Exchange Commission announced fraud charges against a Buffalo, N.Y.-based investment advisory firm and two co-owners accused of making false and misleading statements to clients when recommending investments in a risky hedge fund.  The hedge fund’s portfolio manager agreed to settle similar charges.

The SEC’s Enforcement Division alleges that Timothy S. Dembski and Walter F. Grenda Jr. steered their clients at Reliance Financial Advisors to invest in a hedge fund managed by Scott M. Stephan, whose experience in the securities industry was greatly exaggerated in offering materials they disseminated.  Dembski and Grenda allegedly knew that Stephan had virtually no hedge fund investing experience at all, and spent the majority of his career collecting on past-due car loans.  Nevertheless, highly speculative investments in the Prestige Wealth Management Fund were recommended to clients who were retired or nearing retirement and living on fixed incomes.  The trading strategy that was allegedly described to investors was fully automated by an algorithm purportedly sought by big banks.  The trading algorithm, however, did not work as intended and Stephan began placing trades manually, which led to the hedge fund’s eventual collapse.

“Investment advisers owe their clients a duty of complete candor when it comes to discussing investment options,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “In this case, Dembski and Grenda allegedly violated this fundamental duty by peddling a hedge fund investment that was more risky than depicted and misleading their clients about the portfolio manager’s experience.”

According to the order instituting a proceeding before an administrative law judge, Dembski’s clients invested approximately $4 million in Prestige Wealth Management Fund and Grenda’s clients invested approximately $8 million.  The hedge fund, which began trading in April 2011, did not generate the positive returns advertised, so Grenda withdrew his clients in October 2012.  The fund lost about 80 percent of its value when it collapsed a couple months later, leaving Dembski’s clients to lose the vast majority of their investments.

The SEC’s Enforcement Division further alleges that Grenda borrowed $175,000 from two clients in late 2009 and falsely told them that he would use it as a loan to grow his investment advisory business.  Grenda instead spent the money on personal expenses and debts.

The SEC’s Enforcement Division alleges that Dembski, Grenda, and Reliance Financial Advisors violated the antifraud provisions of the Investment Advisers Act of 1940, Securities Act of 1933, and Securities Exchange Act of 1934, and that Dembski and Grenda aided and abetted and caused violations of those same provisions by Reliance Financial and the general partner to the Prestige Wealth Management Fund.

In a separate order, Stephan agreed to settle findings that he violated the antifraud provisions of the Advisers Act, Securities Act, and Exchange Act, and aided and abetted and caused violations of those same provisions by the general partner to the Prestige Wealth Management Fund.  Without admitting or denying the allegations, Stephan agreed to be permanently barred from the securities industry.  Disgorgement and penalties will be determined at a later date.

The investigation by the SEC’s Enforcement Division was conducted by Tony Frouge, Alexander Janghorbani, Douglas Smith, and Steven G. Rawlings in the New York Regional Office, and the case was supervised by Sanjay Wadhwa.  The litigation will be led by Michael Birnbaum and Mr. Frouge.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

RESTITUTION ORDER FORCES CALIFORNIA MAN TO PAY $1.75 MILLION TO SETTLE FRAUD CHARGES

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
November 13, 2013

Federal Court in California Orders Thomas B. Breen, a Principal of National Equity Holdings, Inc., to Pay $1.75 million to Settle Fraud Charges in CFTC Action

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court Order against a principal of National Equity Holdings, Inc. (National Equity), Thomas B. Breen, of Orange County, California, requiring Breen to jointly pay restitution to defrauded customers in accordance with a restitution Order set in a related criminal action of $1,059,096, and imposes a civil monetary penalty of $700,000 against Breen, as well as permanent trading and registration bans.

The Order, entered on November 5, 2013 by the Honorable James Selna of the U.S. District Court for the Central District of California, stems from a CFTC Complaint filed on November 8, 2011, against Defendants National Equity, Robert J. Cannone, Francis Franco, and Breen, charging them with fraudulent solicitation, misappropriation, and registration violations (see CFTC Press Release 6142-11).

The Order finds, and Breen acknowledges, that from at least June 2009 to May 2010, Breen, by and through National Equity, fraudulently solicited and accepted over $1.4 million to trade commodity futures contracts through a pool. In their solicitations, Breen, by and through National Equity, (1) falsely claimed to have a successful and experienced trader (Franco) for the pool, (2) misrepresented the likelihood of profits and the risks associated with trading commodity futures, (3) failed to disclose that they were not properly registered with the CFTC to operate a pool, and (4) failed to disclose their intended uses of pool participant funds.

The Order further finds that Breen and National Equity traded only a portion of the pool participant funds in proprietary accounts, and sustained overall and significant losses. Breen and National Equity concealed their fraud and trading losses from the pool participants by issuing false account statements reflecting profits. Approximately one year later, they claimed that participants’ fund were all lost in trading, but promised to return their funds.

The CFTC’s litigation continues against Defendant Francis Franco to determine the appropriate amount of a civil monetary penalty to be imposed and whether a personal trading ban should be imposed. However, on April 11, 2013, the court entered a consent Order of permanent injunction against Defendants National Equity and Cannone, requiring them to pay over $3.6 million of restitution and monetary penalties, among other sanctions, to settle the CFTC action (see CFTC Press Release 6567-13).

In related actions, Cannone, as well as the other Defendant Francis Franco, pled guilty to criminal violations of the Commodity Exchange Act, as amended. Cannone was sentenced to 27 months in federal prison, and ordered to pay the $1.05 million in restitution, jointly and severally with the other defendants. Franco was sentenced to 25 months, while Breen was sentenced to 40 months.

The CFTC thanks the Federal Bureau of Investigation, Orange County Office, and the U.S. Attorney’s Office for the Central District of California, Santa Ana Office, for their assistance.

CFTC Division of Enforcement staff members responsible for this case are Michelle S. Bougas, Heather Johnson, James H. Holl, III, and Gretchen L. Lowe.

SEC ANNOUNCES FRAUD CHARGES AGAINST COUPLE FOR "PATH TO RESIDENCY" INVESTOR FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges against a husband and wife in Texas for stealing funds from foreign investors under the guise of an investment opportunity to create U.S. jobs and a path to U.S. residency.

The SEC alleges that Marco and Bebe Ramirez and three companies they own have fraudulently raised at least $5 million from investors by falsely promising that their money would be invested as part of the EB-5 Immigrant Investor Pilot Program.  Through the program, foreign investors can earn conditional visas and eventually green cards by making investments in U.S. economic development projects that will create or preserve a minimum number of jobs for U.S. workers.  Instead of investing the money as promised, the Ramirezes routinely diverted investor funds to other undisclosed businesses and for their personal use.  In at least one instance, they used new investor funds to make Ponzi-like payments to an existing investor.

According to the SEC’s complaint unsealed today in U.S. District Court for the Southern District of Texas, the Ramirezes initially targeted investors in Mexico, but more recently have solicited investors in Egypt and Nigeria.  The court has granted the SEC’s request to freeze the assets and accounts of the Ramirezes and their three companies: USA Now LLC, USA Now Energy Capital Group LP, and Now Co. Loan Services.  This effectively halts their ability to raise further money from investors or spend any remaining funds in the scheme.

“Through their investment scheme, the Ramirezes abused a program intended to attract foreign capital to create U.S. jobs,” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office.  “The Ramirezes misappropriated investor funds for their own purposes without any regard for the harm they caused investors who were seeking an avenue to U.S. residency.”

The SEC and U.S. Citizenship and Immigration Services (USCIS) today issued a joint investor alert that provides additional information about the EB-5 program and cautions investors about fraudulent EB-5 schemes.  USCIS offered substantial assistance in the SEC’s investigation of the Ramirezes.  The EB-5 program is administered by USCIS and enables foreign investors to make their investments either directly in a business or through EB-5 “regional centers” that are private entities organized to promote economic development in specific geographic areas and industries.

According to the SEC’ s complaint, beginning in 2010, the Ramirezes sought approval from USCIS to register USA Now as an EB-5 regional center that would accept and direct investments from foreign investors into investment opportunities that would purportedly satisfy the EB-5 visa requirements.  But even before USCIS decided, the Ramirezes and other USA Now employees already had started soliciting investors with false promises about how their money would be invested.

The SEC alleges that the Ramirezes told investors that USA Now would hold their investments in escrow until they received USCIS approval.  And once the funds were released from escrow, they would be used for specific business purposes.  However, the Ramriezes failed to hold the funds in escrow as required, and instead routinely diverted the funds for other uses not described in offering materials, often on the same day the funds were received.  Among their misappropriations, the Ramirezes appear to have opened a Cajun-themed restaurant with investor funds and settled an unrelated lawsuit.  Meanwhile, none of the at least 10 investors identified by the SEC as victims of the scheme have received visas from USCIS, and none of their funds seem to remain in escrow.

“Even though investors provided the Ramirezes with at least $5 million, none of them have ever received conditional visas let alone green cards,” said David Peavler, Associate Director of the SEC’s Fort Worth Regional Office.  “Instead, the Ramirezes opened a restaurant and purchased other assets for themselves and their employees.”

The SEC’s complaint alleges that the Ramirezes and their companies violated and aided and abetted violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.  The complaint seeks various relief including preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investigation has been conducted by Timothy Evans, Kimberly Cain, Ty Martinez, and Jonathan Scott of the Fort Worth Regional Office.  The SEC’s litigation will be led by Mr. Evans and David Reece.  The SEC appreciates the assistance of the Federal Bureau of Investigation and U.S. Attorney’s Office for the Southern District of Texas.

MAN AND COMPANY ORDERED TO PAY RESTITUTION AND PENATIES TO SETTLE FOREX FRAUD CHARGES

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in Puerto Rico Orders Angel F. Collazo, ACJ Capital, Inc., and Solid View Capital LLC to Pay over $1.5 Million to Settle Forex Fraud Charges in CFTC Enforcement Action

Court also orders Fernando Clemente and Felgi Investments Corp. to pay $150,000 in restitution and penalties and to disgorge over $120,000


Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court consent order requiring defendants Angel F. Collazo, formerly of Salinas, Puerto Rico, and his companies, ACJ Capital, Inc. (ACJ) and Solid View Capital LLC (Solid View), both of San Juan, Puerto Rico, jointly and severally to pay $843,444 in restitution and to pay a $750,000 civil monetary penalty for fraudulently soliciting customers to participate in an off-exchange leveraged foreign currency (forex) pool, misappropriating pool participant funds, and issuing false statements to conceal trading losses and misappropriation.

The CFTC also obtained a second federal court consent order, requiring defendants Fernando Clemente, of Weston, Florida, and his company, Felgi Investments Corp. (Felgi) of Caguas, Puerto Rico, to pay $30,000 in restitution, to disgorge $120,933 in pool participant funds to which they were not legitimately entitled, and to pay a $120,000 civil monetary penalty.

The Orders also impose permanent trading and registration bans against all defendants and prohibit them from violating the anti-fraud provisions of the Commodity Exchange Act, as charged.

The orders, entered by Judge Jose A. Fuste of the U.S. District Court for the District of Puerto Rico on February 13, 2013 and June 10, 2013, respectively, stem from a CFTC complaint originally filed in February of 2012 (see CFTC Press Release 6180-12, February 15, 2012). In July 2012, the CFTC complaint was amended to include defendants Clemente and Felgi. Clemente and Felgi were also named as relief defendants for receiving funds from ACJ, Solid View, and Collazo to which they were not legitimately entitled.


The February 13, 2013 Order finds that Collazo and his companies fraudulently solicited commodity pool participants by falsely claiming profitable returns, while minimizing and failing to fully disclose the risks of trading leveraged forex. The Order also finds that Collazo, ACJ, and Solid View misappropriated pool funds to make payments to pool participants and for personal uses, failed to disclose their intended uses of pool participant funds, misrepresented the profitability of pool trading accounts, and distributed statements to ACJ and Solid View pool participants that contained false account values, including showing consistent trading profits.

The June 10, 2013 Order finds that Clemente and Felgi, misappropriated $30,000 in customer funds that were to have been provided by Felgi to Solid View for personal uses and failed to disclose their intended uses of pool participant funds. The Order also finds that Clemente and Felgi retained $120,933 in purported trading profits to which they were not entitled.

The CFTC appreciates the assistance of the U.S. Attorney’s Office of the District of Puerto Rico in this matter.

CFTC Division of Enforcement staff members responsible for this case are Kara Mucha, James A. Garcia, Michael Solinsky, Gretchen L. Lowe, and Vincent A. McGonagle.

TRADER GETS BUSTED BY SEC FOR PLACEMENT OF OWN TRADES BEFORE THOSE OF CLIENTS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C., May 24, 2013 — 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 his 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.

According to the SEC's complaint, Bergin realized at least $1.7 million in profits in his wife's accounts from 2011 to 2012 as a result of his illegal same-day or front-running trades. More than $520,000 of the $1.7 million represents profits from approximately 132 occasions in which Bergin placed his initial trades in his wife's account ahead of clients' trades.

According to the SEC's complaint, more than $1.8 million was withdrawn since July 2012 from a trading account belonging to Bergin's wife that was undisclosed to his firm. Most of the withdrawals were large transfers to her bank account.

The SEC's complaint names Bergin's wife Jacqueline Zaun as a relief defendant for the purpose of recovering Bergin's illegal trading profits in her accounts.

In order to halt Bergin's ongoing scheme, the SEC requested and U.S. District Court Judge Barbara Lynn granted an emergency court order freezing the assets of Bergin and Zaun.

The SEC's complaint alleges that Bergin violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 17(j) of the Investment Company Act of 1940 and Rule 17j-1. The complaint seeks disgorgement, prejudgment interest, and a penalty as well as a permanent injunction against Bergin.

The SEC's investigation was conducted in the Fort Worth Regional Office by Frank Goodrich and Barbara Gunn of the Asset Management Unit. The litigation will be led by Jennifer Brandt and Mr. Goodrich. The examination that led to the investigation was conducted by Mary Walters, Anthony McNeal, Charles Amsler, Brandon Whitaker, Carol Hahn, Dennis Rogers, and Kim Shaw of the Fort Worth 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.

ALLEGED NEW GOLD EXTRACTION PROCESS EXTRACTED FUNDS FROM INVESTORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today filed fraud charges against a California-based mining company and its CEO who induced hundreds of investors to pour $16 million into a fruitless gold mining venture.

The SEC alleges that Nekekim Corporation and Kenneth Carlton defrauded investors with representations that a special "complex ore" found at Nekekim's mine site in Nevada contained gold deposits worth at least $1.7 billion. Carlton highlighted test results produced by two small labs that used unconventional methods to test the ore for gold, but he withheld from investors other tests conducted by different firms that suggested the Nekekim mine site held little if any gold. The small labs' reliability also had been called into doubt by geologists and a government study. Yet as Nekekim failed to produce any mining revenue, Carlton gave shareholders false hope that the company was close to perfecting the custom method it supposedly needed to extract gold from its special ore.

Carlton agreed to settle the SEC's charges.

According to the SEC's complaint filed in federal court in Fresno, Calif., Nekekim succeeded in attracting investors from 2001 to 2011 in such U.S. states as California, Florida, and New Jersey as well as foreign countries including Canada, Australia, and Singapore. Carlton falsely represented to investors that a "physicist" who in reality had no scientific training helped develop a confidential gold extraction technique licensed by Nekekim. Carlton also promoted a series of other supposedly promising extraction methods in frequent reports to shareholders. In one newsletter, he touted: "A NEW GOLD RECOVERY PROCESS IS SUCCESSFUL." As each of these methods actually failed, Carlton's reports grossly overstated Nekekim's progress toward profitability while prompting shareholders to invest more money in the company.

Carlton, who lives in Clovis, Calif., agreed to a judgment requiring him to pay a $50,000 penalty and prohibiting him from selling securities for Nekekim or managing the company. He also will be prohibited from further violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Nekekim, based in Madera, Calif., agreed to a judgment prohibiting the same violations and requiring disclosure of these sanctions in any offering of securities for the next three years. Carlton and Nekekim neither admitted nor denied the SEC's allegations.

This case was investigated by Thomas Eme and Tracy Davis of the SEC's San Francisco office.