SEC ACCUSES FORMER PRESIDENT INVESTMENT ADVISORY FIRM WITH STEALING CLIENT FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/15/2015 02:20 PM EDT

The Securities and Exchange Commission announced fraud charges against a Washington D.C.-based investment advisory firm’s former president accused of stealing client funds.  The firm and its chief compliance officer separately agreed to settle charges that they were responsible for compliance failures and other violations.

SFX Financial Advisory Management Enterprises is wholly-owned by Live Nation Entertainment and specializes in providing advisory and financial management services to current and former professional athletes.  The SEC Enforcement Division alleges that SFX’s former president Brian J. Ourand misused his discretionary authority and control over the accounts of several clients to steal approximately $670,000 over a five-year period by writing checks to himself and initiating wires from client accounts for his own benefit.

The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC separately charged SFX and its CCO Eugene S. Mason, finding that the firm failed to supervise Ourand, violated the custody rule, and made a false statement in a Form ADV filing.  The SEC finds that Mason caused some of SFX’s compliance failures by negligently failing to conduct reviews of cash flows in client accounts, which was required by the firm’s compliance policies, and not performing an annual compliance review.  Mason also was responsible for a misstatement in SFX’s Form ADV that client accounts were reviewed several times each week.  SFX and Mason agreed to pay penalties of $150,000 and $25,000 respectively.

“Investment advisers have a fiduciary obligation to safeguard client assets,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “SFX failed to detect an alleged misappropriation for years because it had insufficient internal controls to limit Ourand’s ability to withdraw client funds for personal use.”

The SEC’s continuing investigation is being conducted by Payam Danialypour and C. Dabney O’Riordan, members of the Asset Management Unit in the Los Angeles Regional Office. The Enforcement Division’s litigation against Ourand will be conducted by Mr. Danialypour, Donald Searles, and Lynn Dean.

CFTC CHARGES MAN, COMPANY WITH DEFRAUDING INVESTOR PARTICIPANTS IN INVESTMENT POOL

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

June 24, 2015

CFTC Charges Illinois Resident Nick A. Wurl and His Company Ludiera Capital LLC with Fraud and Misappropriation in $9 Million Scheme

Defendants allegedly defrauded at least 46 participants in an investment pool

Wurl was charged with wire fraud in a related criminal action

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a federal enforcement action in the U.S. District Court for the Northern District of Illinois against Defendants Nick A. Wurl and his company Ludiera Capital LLC, both of Chicago, Illinois, charging them with fraud, misappropriation, and the issuance of false statements in connection with an investment pool they operated that traded commodity futures contracts and options on futures contracts. According to the CFTC Complaint, “In reality, the pool was little more than a shell company used to defraud pool participants and enrich Defendants at their expense.”

On May 27, 2015, the U.S. Department of Justice (DOJ), in a related criminal complaint filed in the U.S. District Court for the Northern District of Illinois, charged Wurl with wire fraud. In conjunction with that action, DOJ obtained writs of garnishment against known accounts in the names of Wurl and Ludiera.

The CFTC’s Complaint alleges that Defendants fraudulently solicited over $9 million from at least 46 investors for the represented purpose of trading physical commodities, such as soybeans and other agricultural commodities, as well as energy products. In their solicitations, Defendants fraudulently represented that (1) Defendants would only invest participants’ funds in the buying and selling of physical commodities; (2) Defendants’ physical commodity trading was generating profits for participants; (3) Defendants were not engaged in the trading of futures or options; (4) participants’ funds would be maintained in segregated accounts; and (5) the worst potential outcome for investors was 0 percent return on investment.

According to the Complaint, and contrary to the represented investment strategy, Defendants never engaged in physical commodity trading. Rather, the bulk of participants’ funds — over $6.8 million — was pooled and used by Defendants to trade futures and options. Defendants never disclosed to participants the risk of trading futures and options and never disclosed that a significant portion of participants’ funds would be used for trading futures and options. Further, Defendants never disclosed that Defendants were sustaining significant trading losses. Rather, Defendants operated to conceal their commingling and misappropriation of customer funds and trading losses by providing pool participants with false reports and account statements showing fictitious profits.

The CFTC Complaint also alleges that Defendants misappropriated at least $600,000 of participants’ funds to pay down personal credit card debt and purchase vehicles, among other things. Akin to a Ponzi scheme, and in order to further disguise their trading losses and misappropriation, the Defendants also distributed approximately $1.8 million to pool participants in redemptions, utilizing other pool participants’ principal to fund these payments.

In its continued litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and preliminary and permanent injunctions from further violations of the federal commodities laws, as charged.

The CFTC thanks and acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Illinois and the Federal Bureau of Investigation.

CFTC Division of Enforcement staff members responsible for this action are Rachel Hayes, Rebecca Jelinek, Stephen Turley, Lauren Fulks, Diane Romaniuk, Peter Riggs, and Charles Marvine.

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SEC CHARGES MICROCAP PROMOTER WITH ILLEGALLY SOLD PENNY STOCK USING OFFSHORE FRONT COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/23/2015 04:55 PM EDT

The Securities and Exchange Commission charged a microcap promoter with illegally selling more than 83 million penny stock shares that he secretly obtained through at least 10 different offshore front companies.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Gregg R. Mulholland surreptitiously accumulated at least 84 percent of the issued and outstanding shares of Vision Plasma Systems Inc.  Once he effectively controlled the company through this majority ownership, Mulholland liquidated his shares for proceeds of at least $21 million.  No registration statement was filed or in effect covering Mulholland’s sales, and no exemption from registration was available.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Mulholland.

“Mulholland’s intricate web of offshore entities failed to hide his alleged illicit sales,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement.  “We are committed to holding accountable those who abuse the microcap markets, regardless of the elaborate steps they take to conceal their misconduct.”

According to the SEC’s complaint, Mulholland lives in Canada and was previously charged by the SEC in 2011 for the fraudulent pump-and-dump manipulation of a sports drink company founded by Daniel “Rudy” Ruettiger, known for having inspired the motion picture “Rudy.”  In 2013, the SEC obtained a monetary judgment against Mulholland for more than $5.3 million in disgorgement, prejudgment interest, and penalties that remains unpaid.

The SEC’s complaint charges Mulholland with violating Sections 5(a) and 5(c) of the Securities Act of 1933.  

The SEC’s continuing investigation is being conducted in coordination with the Microcap Fraud Task Force by John P. Lucas and Andrew R. McFall.  The case is being supervised by J. Lee Buck II, and will be litigated by Derek Bentsen and Michael J. Roessner.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Internal Revenue Service, Department of Homeland Security, and Financial Industry Regulatory Authority.

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TWO CRIMINALLY CHRGED IN SEC CASE INVLOVLING PROFESSIONAL ATHLETE LOANS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23286 / June 15, 2015
Securities and Exchange Commission v. Capital Financial Partners, LLC et al., Civil Action No. 15-cv-11447-IT (D. Mass.)
United States of America v. Will D. Allen and Susan C. Daub, Case No. 15-mj-7095-JCB (D. Mass.)
Defendants in SEC Case Involving Loans to Professional Athletes Are Criminally Charged

The Securities and Exchange Commission announced that, on June 12, 2015, the U.S. Attorney's Office in Massachusetts filed a criminal complaint against William D. Allen and Susan C. Daub charging them with securities fraud. The criminal charges are in connection with the same conduct on which the SEC filed a civil fraud case on April 1, 2015 alleging that Allen and Daub, through various corporate entities, operated a Ponzi scheme that raised more than $31 million from investors who were promised profits from loans to professional athletes. In the civil fraud case, the federal court in the District of Massachusetts granted the SEC's request for emergency relief against Allen, Daub, and various corporate entities registered to them, and issued an order freezing their assets and affording other injunctive relief.

The criminal complaint alleges that Allen and Daub solicited and collected money from investors for loans to athletes that were never issued on multiple occasions. On one occasion, according to the criminal complaint, one investor received forged loan documents from Daub in connection with a purported loan to an athlete that was never made. The criminal complaint also alleges that Allen and Daub collected money for oversubscribed loans. As one example, according to the criminal complaint, Daub collected approximately $2.5 million from several investors to fund a $500,000 loan to an athlete in March 2013. The criminal complaint alleges that investor funds collected on both occasions were used to make payments to other investors, to make payments to an entity registered to Allen, and to make transfers directly to Allen.

In the SEC's earlier, related enforcement action, the SEC named Allen, Daub, Florida-based Capital Financial Partners Enterprises LLC, and Boston-based Capital Financial Partners LLC and Capital Financial Holdings LLC, alleging that they violated federal anti-fraud laws and related SEC anti-fraud rules. Four other entities owned or controlled by Allen, Daub, or both were named in the complaint as relief defendants based on their receipt of investor funds - WJBA Investments LLC, Insurance Depot of America LLC, Simplified Health Solutions LLC, and Simplified Health Solutions 2 LLC. On April 28, 2015, the defendants assented to a preliminary injunction restraining them from violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The preliminary injunction also froze the assets of all defendants and relief defendants, restrained the defendants from accepting additional investor funds in furtherance of the alleged fraud, and restrained the defendants from destroying or concealing documents related to the alleged fraud.

Allen and Daub are scheduled to appear in federal court for a hearing in the criminal case on July 7, 2015.