SEC ANNOUNCES SETTLEMENT OF FRAUD CHARGES WITH OWNERS OF RESIDENTIAL, COMMERCIAL REAL ESTATE COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/13/2015 11:30 AM EDT

The Securities and Exchange Commission today announced that three Maryland men have agreed to settle charges that they defrauded investors in a company that owns and operates residential and commercial real estate.  Boston-based Signator Investors Inc. and one of its supervisors agreed to settle separate charges that they failed to supervise two of the men who worked in Signator’s Maryland office.

The SEC alleges that James R. Glover orchestrated the fraud by enticing family, friends, and fellow church members to become his clients at Signator and invest in Colonial Tidewater Realty Income Partners, which he co-managed.  Most of Glover’s clients were financially unsophisticated and relied on him for investment guidance.  Some even described him as “another dad” or “part of the family.”

“Glover lied to unsuspecting members of his close-knit religious community and preyed upon the trust they placed in him as their registered representative,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.

According to the SEC’s complaint filed in federal court in Baltimore against Colonial Tidewater, Glover, and Colonial Tidewater’s co-manager Sherman T. Hill:
Glover steered approximately 125 clients to purchase partnership units in Colonial Tidewater.

Glover and Hill provided false and misleading written statements about Colonial Tidewater’s value and financial condition.

Glover lied to investors about the liquidity of Colonial Tidewater’s investments and the expected returns.

Glover and Cory D. Williams, his business partner in Signator’s Maryland office, did not inform clients that they received undisclosed commissions from Colonial Tidewater when clients invested in the company, thus failing to disclose conflicts of interest.

Glover misappropriated hundreds of thousands of dollars of investor funds.
According to an SEC order instituting a settled administrative proceeding against Signator and Gregory J. Mitchell, who was a supervisor in Signator’s Maryland office:

Signator and Mitchell failed to identify and prevent the alleged fraud conducted by Glover and Williams.

Signator failed to have reasonable policies and procedures governing consolidated reports, which could be used to combine all of a client’s financial holdings in a single report.  

Glover, without Signator’s knowledge, inserted clients’ Colonial Tidewater holdings into the consolidated reports to create the false impression that Colonial Tidewater was a Signator-approved investment when it was never authorized for sale by Signator representatives.

Rather than following Signator’s policies and procedures, Mitchell routinely allowed Glover and Williams to select client files for his review or he provided them a pre-selected list of names of client files to be reviewed, enabling them to remove all references to Colonial Tidewater investments before Mitchell reviewed the records.

“Signator and Mitchell failed to conduct the thorough reviews necessary to catch Glover and Williams in the act of defrauding investors,” said Ms. Binger.

Colonial Tidewater, Glover, and Hill agreed to settle the SEC’s charges without admitting or denying the allegations, and consented to the appointment of a receiver to take control of Colonial Tidewater.  Under settlements that are subject to court approval, Colonial Tidewater would be required to pay $527,844 in disgorgement, $66,542 in prejudgment interest, and a $725,000 penalty.  Glover agreed to be barred from the securities industry and pay $839,128 in disgorgement, $64,977 in prejudgment interest, and a $450,000 penalty.  Hill agreed to pay a $75,000 penalty.

In a separate SEC order, Williams agreed to settle charges that he violated provisions of the Investment Advisers Act.  Without admitting or denying the SEC’s findings, he agreed to be barred from the securities industry and pay $94,191 in disgorgement, $9,854 in prejudgment interest, and a $94,191 penalty.

Signator and Mitchell agreed to pay penalties of $450,000 and $15,000 respectively without admitting or denying the SEC’s findings.  Signator agreed to be censured and Mitchell agreed to be suspended from acting in a supervisory capacity for one year.

Funds collected from all the parties will go into a Fair Fund for injured investors.

The SEC’s investigation was conducted by Suzanne C. Abt, Assunta Vivolo, Scott A. Thompson, and Kelly L. Gibson in the Philadelphia Regional Office and supervised by G. Jeffrey Boujoukos.  The litigation will be handled by Christopher R. Kelly and David L. Axelrod.  The investigation followed an examination conducted by James O’Leary and Aidan Busch of the Philadelphia office under the supervision of Frank A. Thomas.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC CHARGES TEXAS-BASED BROKERAGE WITH FAILING TO SUPERVISE REPRESENTATIVES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

03/04/2015 11:25 AM EST

The Securities and Exchange Commission today charged an Irving, Texas-based brokerage firm with violating key customer protection rules after failing to adequately supervise registered representatives who misappropriated customer funds.

H.D. Vest Investment Securities agreed to settle the charges by paying a financial penalty and retaining an independent compliance consultant to improve its supervisory controls.

According to the SEC’s order instituting a settled administrative proceeding, H.D. Vest has more than 4,500 registered representatives typically working as independent contractors who also operate tax businesses outside of their securities businesses.  H.D. Vest failed to have proper policies and procedures in place to monitor its representatives’ outside business activities, and as a result some representatives used their outside businesses to defraud brokerage customers in such ways as transferring or depositing customer brokerage funds into their outside business accounts.

The SEC’s order further finds that H.D. Vest did not follow customer protection rules in the wake of the wrongdoing by its representatives.  Under these rules to protect customer funds and securities in the possession of broker-dealers, H.D. Vest was required to make certain calculations and, if necessary, deposit funds into a reserve account for the benefit of customers who were harmed by the representatives’ misconduct.  H.D. Vest neither made the calculations nor maintained a reserve account.

“H.D. Vest lacked sufficient supervisory controls to track the transfer of customer funds to outside entities controlled by its registered representatives,” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office.  “Firms like H.D. Vest do face greater challenges in supervising their representatives in numerous small branch offices spread across the country, but that doesn’t excuse the firm from establishing adequate policies and procedures to address those challenges.”

The SEC’s order finds that H.D. Vest violated the supervision requirements of Section 15(b)(4)(E) of the Securities Exchange Act of 1934 as well as the customer protection rules found in Section 15(c)(3) of the Exchange Act and in Rule 15c3-3.  H.D. Vest also violated the document preservation requirements in Section 17(a) of the Exchange Act and in Rule 17a-4(b)(4).  H.D. Vest consented without admitting or denying the findings in the SEC’s order to cease and desist from committing these violations and pay a $225,000 penalty.  The representatives involved in the misconduct have since been the subject of criminal, civil, or FINRA enforcement actions.

The SEC’s investigation was conducted in the Fort Worth office by Michael A. Umayam and Samantha S. Martin.  The SEC examination that led to the investigation was conducted by Aaron Pabst, Paul Rash, and Mary Walters.

MF GLOBAL ORDERED TO PAY OVER $1.2 BILLION RESULTING FROM UNLAWFUL USE OF CUSTOMER FUNDS

FROM:  U.S. JUSTICE DEPARTMENT 
December 24, 2014
Federal Court in New York Orders MF Global Holdings Ltd. to Pay $1.212 Billion in Restitution for Unlawful Use of Customer Funds and Imposes a $100 Million Penalty

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) has obtained a federal court consent Order against Defendant MF Global Holdings Ltd. (MFGH) requiring it to pay $1.212 billion in restitution or such amount as necessary to ensure that claims of customers of its subsidiary, MF Global Inc. (MFGI), are paid in full. The CFTC previously filed and settled charges against MFGI for misuse of customer funds and related supervisory failures in violation of the Commodity Exchange Act and CFTC Regulations (see CFTC Press Release 6776-13). MFGI was required to pay $1.212 billion in restitution to its customers, as well as a $100 million penalty. MFGH’s restitution obligation is joint and several with MFGI’s restitution obligation, pursuant to which a substantial portion of the restitution obligation has already been paid (see CFTC Press Prelease 6904-14). The consent Order, entered on December 23, 2014, by Judge Victor Marrero of the U.S. District Court for the Southern District of New York, also imposes a $100 million civil monetary penalty on MFGH, to be paid after claims of customers and certain other creditors entitled to priority under bankruptcy law have been fully paid.

The consent Order arises out of the CFTC’s amended Complaint, filed on December 6, 2013, charging MFGH and the other Defendants with unlawful use of customer funds. In the consent Order, MFGH admits to the allegations pertaining to its liability based on the acts and omissions of its agents as set forth in the consent Order and the amended Complaint.

The CFTC’s amended Complaint charged that MFGH controlled MFGI’s operations and was responsible for MFGI’s unlawful use of customer segregated funds during the last week of October 2011. In addition to the misuse of customer funds, the amended Complaint alleged that MFGH is responsible for MFGI’s (i) failure to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts, (ii) filing of false statements in reports with the CFTC that failed to show the deficits in the customer accounts, and (iii) use of customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid, in violation of CFTC regulations.

The CFTC’s litigation continues against the remaining Defendants, Jon S. Corzine and Edith O’Brien.

The CFTC appreciates the assistance of the U.S. Attorneys’ Offices for the Southern District of New York and the Northern District of Illinois, the Federal Bureau of Investigation, the Securities and Exchange Commission, and the Financial Conduct Authority in the United Kingdom.

The consent Order recognizes the cooperation of MFGH and requires MFGH’s continued cooperation with the CFTC.

Staff from the CFTC’s Division of Swap Dealer and Intermediary Oversight, Division of Clearing and Risk, and Office of Data and Technology assisted in this matter. CFTC Division of Enforcement staff members responsible for this matter are David W. Oakland, Chad Silverman, K. Brent Tomer, Douglas K. Yatter, Steven Ringer, Lenel Hickson, and Manal Sultan.

FOREX TRADING CO. TO PAY $600,000 PENALTY FOR MINIMUM NET CAPITAL DEFICITS, UNTIMELY NOTICE, FAILURE TO SUPERVISE

FROM:  COMMODITY FUTURES TRADING COMMISSION

December 10, 2014

CFTC Orders IBFX, Inc. f/k/a Tradestation Forex, Inc. to Pay a $600,000 Penalty for Series of Minimum Net Capital Deficits, Untimely Notice, and a Failure to Supervise

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against IBFX, Inc. f/k/a Tradestation Forex, Inc. (IBFX), a Florida-based Retail Foreign Exchange Dealer (RFED), for violating CFTC Regulations by failing to meet the minimum net capital requirements on three separate occasions, failing to timely report one of the minimum net capital deficits, and failing to supervise its employees and agents diligently by establishing, implementing, and executing an adequate supervisory structure and compliance programs.

The CFTC Order finds that from December 2011 through June 9, 2014 (the Relevant Period), IBFX violated CFTC Regulations by failing to meet the minimum net capital requirements on three separate occasions. First, during the period December 2011 to June 2012, IBFX had uncovered foreign currency positions. Based on the corrected charges to capital for these uncovered positions, as calculated on a month-end basis, IBFX failed to meet the minimum net capital requirements for January 31, 2012. Second, IBFX failed to meet the minimum net capital requirements for a brief period of time on January 9, 2013, due to a typographical error. IBFX immediately discovered this failure, but failed to report the failure to the CFTC until January 11, 2013. Finally, IBFX failed to meet the minimum net capital requirements on June 9, 2014, when software that IBFX installed, but did not fully test prior to installation, resulted in uncovered positions requiring charges to capital. IBFX’s failure to adequately test the new software, lack of a system to timely detect erroneous trades generated by the new software, and inability to accurately assess and reverse the errors evidence IBFX’s lack of diligent supervision in violation of a CFTC Regulation.

The CFTC Order requires IBFX to pay a $600,000 civil monetary penalty and requires IBFX to develop an automated forex exposure monitoring system that will enable the comprehensive real-time monitoring of its actual forex exposure, and adopt and implement risk management procedures regarding 24-hour forex exposure monitoring. The Order also requires IBFX to retain a nationally recognized independent third-party consultant to review and evaluate IBFX’s information technology development and implementation policies and procedures and prepare a written report with recommendations for improvement, as applicable, which IBFX will implement absent extenuating circumstances.

IBFX has cooperated with Division of Enforcement and Division of Swap Dealer and Intermediary Oversight staff.

The CFTC acknowledges the valuable assistance of the National Futures Association in connection with this matter.

The CFTC Division of Enforcement staff members responsible for this matter are Allison Baker Shealy, Timothy J. Mulreany, and Paul Hayeck, with assistance from CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) staff Kevin Piccoli, Robert Laverty, Gerald J. Nudge, Timothy J. Wigand, Ronald Carletta, and Linda Santiago.