ALLEGED FALSE CLAIMS LEADS TO SEC FRAUD CHARGES AGAINST INVESTMENT ADVISER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC: Investment Adviser Boasted Phony Assets and Track Record, Stole From Client

FOR IMMEDIATE RELEASE

2016-161

Washington D.C., Aug. 11, 2016 — The Securities and Exchange Commission today announced fraud charges against a San Francisco man and his investment advisory firm accused of pretending to manage millions of dollars in assets and then stealing money from the first client who invested with them based on their misrepresentations.

The SEC alleges that Nicholas M. Mitsakos and Matrix Capital Markets, which is a state-registered investment adviser in California, solicited investors in a purported hedge fund while falsely marketing themselves as experienced money managers with a highly successful track record.  They claimed assets under management in the millions when in fact they did not manage any client assets at all, and they fabricated a hypothetical portfolio of investments earning 20 to 66 percent annual returns and passed it off to investors as real trading.  When Mitsakos and Matrix Capital Markets were given $2 million in client assets to manage in September 2015, they proceeded to steal approximately $800,000 from that client and used most of it to pay for unauthorized personal and business expenses.

“We allege that Mitsakos and his firm tried to lure prospective investors with a mirage of assets under management and phony performance results, and when they finally won some actual business from a client, they proceeded to steal a large portion of it,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Whenever pitched an investment opportunity with claims of lofty historical performance, it’s important for investors to take the time to verify the information and make sure they’re getting the truth before deciding to invest.”

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

The SEC’s complaint was filed in U.S. District Court for the Southern District of New York and charges Mitsakos and Matrix Capital Markets with violating the antifraud provisions of the federal securities laws.  Mitsakos also is charged with aiding and abetting Matrix Capital’s violations.  The SEC seeks permanent injunctions and disgorgement of ill-gotten gains plus penalties.

The SEC’s continuing investigation is being conducted by Alison R. Levine, Kerri Palen, Alex Janghorbani, and Valerie A. Szczepanik, and the case is supervised by Lara S. Mehraban.  The litigation will be led by Alex Janghorbani and Alison R. Levine.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York.

OZ MANAGEMENT LP TO PAY $4.25 MILLION PENALTY TO SETTLE CHARGES FOR MISIDENTIFYING TRADES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

07/14/2015 10:00 AM EDT

The Securities and Exchange Commission today charged OZ Management LP with providing inaccurate trade data to four prime brokers, causing inaccuracies in the brokers’ books and records and in data provided to the SEC in investigations.  OZ Management, an investment adviser for numerous Och-Ziff funds, admitted wrongdoing and agreed to pay a $4.25 million penalty to settle the charges.

According to the SEC’s order instituting a settled cease-and-desist proceeding, for nearly six years, ending in December 2013, OZ Management misidentified some trades in data provided to four of its prime brokers.  Although trade settlement was unaffected, the erroneous data had a significant impact, causing the four prime brokers to inaccurately list approximately 552 million shares in their own books and records.  The erroneous information also was incorporated into data that brokers provide electronically to regulators, resulting in approximately 14.4 million shares being inaccurately reported in response to the SEC’s “blue sheet” requests.  FINRA made several referrals to the Commission based on the incorrect trade data.

Detailed trade data on “blue sheets,” named for the original paper form, help the SEC investigate conduct such as insider trading and market manipulation, and reconstruct trading after extreme market volatility.  The SEC discovered OZ Management’s violations during an investigation in 2013, when it determined that the firm’s own files identified certain trades differently than the blue sheets.  The discrepancy arose for trades where OZ Management did not characterize sales as long or short based on how they were marked when they were sent to the market but filtered them based on other factors, such as the relevant fund’s position in the stock at the prime broker.  As a result, the way trades were identified sometimes changed, causing some long sales to be erroneously shown as short sales when OZ Management provided the data to its prime brokers.  OZ Management has since provided corrected historical information to the affected prime brokers who are working to make their own corrections.

“The SEC relies on the accuracy of the books and records of financial institutions and blue sheet data,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “OZ Management’s inaccurate data had a substantial ripple effect that the SEC staff discovered through diligent investigative work.”

This is the second recent SEC enforcement action involving blue sheets.  In 2014, the Commission sanctioned Scottrade for failing to provide accurate and complete blue sheet submissions to the SEC.

The SEC’s order finds that OZ Management’s conduct caused violations by four prime brokers of the federal securities laws and SEC rules requiring accurate books and records.  The SEC also found that OZ Management wrongfully purchased stock during a restricted period for a secondary offering in 2011, in violation of SEC Rule 105.  OZ Management admitted the facts in the SEC’s order and consented to a cease-and-desist order.  In addition to the $4.25 million penalty, OZ Management agreed to return $243,427 of ill-gotten trading gains and prejudgment interest from its trading in violation of Rule 105.

The SEC’s investigation was conducted by Ann Rosenfield, John Marino, Ainsley Kerr and Carolyn M. Welshhans of the Enforcement Division’s Market Abuse Unit.  The case was supervised by Daniel M. Hawke, Chief of the Market Abuse Unit, and co-deputy unit chief Robert A. Cohen.

SEC ALLEGES INVESTMENT ADVISORY FIRM AND ITS PRESIDENT PLAYED FAVORITES WITH CLIENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today announced charges against a San Diego-based investment advisory firm and its president for allegedly steering winning trades to favored clients and lying about how certain money was being spent.

The SEC’s Enforcement Division alleges that J.S. Oliver Capital Management and Ian O. Mausner engaged in a cherry-picking scheme that awarded more profitable trades to hedge funds in which Mausner and his family had invested.  Meanwhile they doled out less profitable trades to other clients, including a widow and a charitable foundation.  The disfavored clients suffered approximately $10.7 million in harm.

The SEC’s Enforcement Division further alleges that Mausner and J.S. Oliver misused soft dollars, which are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment adviser’s client accounts.  If appropriately disclosed, an investment adviser may retain the soft dollar credits to pay for expenses, including a limited category of brokerage and research services that benefit clients.  However, Mausner and J.S. Oliver misappropriated more than $1.1 million in soft dollars for undisclosed purposes that in no way benefited clients, such as a payment to Mausner’s ex-wife related to their divorce.

“Mausner’s fraudulent schemes were a one-two punch that betrayed his clients and cost them millions of dollars,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Investment advisers must allocate trades and use soft dollars consistent with their fiduciary duty to put client interests first.”

The SEC also charged Douglas F. Drennan, a portfolio manager at J.S. Oliver, for his role in the soft dollar scheme.

According to the SEC’s order instituting administrative proceedings, Mausner engaged in the cherry-picking scheme from June 2008 to November 2009 by generally waiting to allocate trades until after the close of trading or the next day.  This allowed Mausner to see which securities had appreciated or declined in value, and he gave the more favorably priced securities to the accounts of four J.S. Oliver hedge funds that contained investments from Mausner and his family.  Mausner profited by more than $200,000 in fees earned from one of the hedge funds based on the boost in its performance from the winning trades he allocated.  Mausner also marketed that same hedge fund to investors by touting the fund’s positive returns when in reality those returns merely resulted from the cherry-picking scheme.

According to the SEC’s order, the soft dollar scheme occurred from January 2009 to November 2011.  Mausner and J.S. Oliver failed to disclose the following uses of soft dollars:

More than $300,000 that Mausner owed his ex-wife under their divorce agreement.
More than $300,000 in “rent” for J.S. Oliver to conduct business at Mausner’s home.  Most of this amount was funneled to Mausner’s personal bank account.
Approximately $480,000 to Drennan’s company for outside research and analysis when in reality Drennan was an employee at J.S. Oliver.
Nearly $40,000 in maintenance and other fees on Mausner’s personal timeshare in New York City.
According to the SEC’s order, Drennan participated in the soft dollar scheme by submitting false information to support the misuse of soft dollar credits and approving some of the soft dollar payments to his own company.

The SEC’s order alleges that J.S. Oliver and Mausner willfully violated the antifraud provisions of the federal securities laws and asserts disclosure, compliance, and recordkeeping violations against them.  The SEC’s order alleges that Drennan willfully aided, abetted, and caused J.S. Oliver’s fraud violations in the soft dollar scheme.

The SEC’s investigation, which is continuing, has been conducted by Ronnie Lasky and C. Dabney O’Riordan of the Enforcement Division’s Asset Management Unit in the Los Angeles Regional Office.  The SEC’s litigation will be led by David Van Havermaat, John Bulgozdy, and Ms. Lasky.  The examination of J.S. Oliver was conducted by Ashish Ward, Eric Lee, and Pristine Chan of the Los Angeles office’s investment adviser/investment company examination program.

SEC SANCTIONS FORMER PORTFOLIO MANAGER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today sanctioned a former portfolio manager at a Boulder, Colo.-based investment adviser for forging documents and misleading the firm’s chief compliance officer to conceal his failure to report personal trades.

An SEC investigation found that Carl Johns of Louisville, Colo., failed to pre-clear or report several hundred securities trades in his personal accounts as required under the federal securities laws and the code of ethics at Boulder Investment Advisers (BIA).  Johns concealed the trades in quarterly and annual trading reports that he submitted to BIA by altering brokerage statements and other documents that he attached to those reports.  Johns later tried to conceal his misconduct by creating false documents that purported to be pre-trade approvals, and misled the firm’s chief compliance officer in her investigation into his improper trading.

To settle the SEC’s charges – which are the agency’s first under Rule 38a-1(c) of the Investment Company Act for misleading and obstructing a chief compliance officer (CCO) – Johns agreed to pay more than $350,000 and be barred from the securities industry for at least five years.

“Securities industry professionals have an obligation to adhere to compliance policies, and they certainly must not interfere with the chief compliance officers who enforce those policies,” said Julie Lutz, Acting Co-Director of the SEC’s Denver Regional Office.  “Johns set out to cover up his compliance failures by creating false documents and misleading his firm’s CCO.”

According to the SEC’s order instituting settled administrative proceedings against Johns, the Investment Company Act required him to submit quarterly reports of his personal securities transactions and annual reports of his securities holdings.  His firm’s code of ethics contained further restrictions on when and how Johns could trade in securities, and required his transactions to be pre-cleared by the firm’s chief compliance officer.  From 2006 to 2010, Johns failed to comply with these obligations and did not pre-clear or report approximately 640 trades.  These included at least 91 trades involving securities held or acquired by the funds managed by the firm.  The code of ethics restricted trading in securities that the funds were buying or selling.

According to the SEC’s order, Johns submitted inaccurate quarterly and annual reports and falsely certified his annual compliance with the code of ethics.  Johns physically altered brokerage statements, trade confirmations, and pre-clearance approvals before submitting them to the firm along with these reports.  For example, he manually deleted securities holdings listed on his brokerage statements before submitting them in order to avoid disclosing securities purchases that were not pre-cleared.

The SEC’s order further finds that Johns created several documents that purported to be pre-clearance requests approved by the firm’s CCO, who had never actually reviewed or approved such trades.  Johns created these false pre-clearance approvals to cover up instances in his annual report when securities transactions were not pre-cleared.  Johns also altered the trade confirmations that he submitted to BIA by backdating the dates of the transactions, and he backdated trade confirmations to make it falsely appear as though pre-clearances were granted in advance of the transactions.

According to the SEC’s order, the firm’s CCO in late 2010 identified irregularities in the documents that Johns submitted to BIA detailing his personal securities transactions.  The irregularities prompted the CCO to make inquiries about his compliance with the firm’s code of ethics, and Johns misled the CCO in response.  Johns falsely told the CCO that he had closed certain brokerage accounts when in fact they remained open and were involved in trading that was not pre-cleared as required.  Johns also accessed the hard copy file of his previously submitted brokerage statements and physically altered them to create the false impression that his trading was in compliance.

In settling the SEC’s charges, Johns has agreed to pay disgorgement of $231,169, prejudgment interest of $23,889, and a penalty of $100,000.  Without admitting or denying the SEC’s findings, Johns consented to a five-year bar and a cease-and-desist order.

The SEC’s investigation was conducted by Michael Cates and Ian Karpel of the Denver Regional Office following an examination conducted by Craig Ellis, Bruce Ketter, and Thomas Piccone of the Denver office’s investment adviser/investment company examination program.

DETROIT INVESTMENT ADVISER CHARGED BY SEC WITH STEALING ALMOST $3.1 MILLION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., June 10, 2013 — The Securities and Exchange Commission today charged the leader of a Detroit-based investment adviser for stealing nearly $3.1 million from the pension fund that the firm manages for the city's police officers and firefighters so he could buy two strip malls in California. The SEC charged four other top officials at the firm for helping him try to cover up the theft.

The SEC alleges that Chauncey C. Mayfield, who is the founder, president, and CEO of MayfieldGentry Realty Advisors, took the money from the Police and Fire Retirement System of the City of Detroit without obtaining permission. He used it to purchase the shopping properties and title them in the name of a MayfieldGentry affiliate. Other executives at MayfieldGentry gradually became aware that Mayfield had siphoned money away from their biggest client. Rather than come clean about the theft and risk losing the sizeable business the firm received from the pension fund, MayfieldGentry officials instead devised a plan to secretly repay the pension fund by cutting costs at the firm and selling the strip malls. Their plan ultimately failed when MayfieldGentry could not raise enough capital to put the stolen amount back into the pension fund.

Mayfield and his firm agreed to settle the charges by paying back the stolen amount.

"Mayfield stole pension money from Detroit's retired police officers, firefighters, and surviving spouses and children to buy strip malls," said Andrew Ceresney, Co-Director of the SEC's Division of Enforcement. "To make matters worse, other senior officers at the firm joined together with him to cover up his deceitful and grave betrayal of trust, all for the purpose of keeping the client."

The other MayfieldGentry executives charged in the SEC's complaint are chief financial officer Blair D. Ackman, chief operating officer Marsha Bass, chief investment officer W. Emery Matthew, and chief compliance officer and general counsel Alicia M. Diaz.

According to the SEC's complaint filed in federal court in Detroit, Mayfield took the money from a trust account for the pension fund in 2008. The stolen money could have provided a year of benefits for more than 100 retired police officers, firefighters, and surviving spouses and children. Shortly thereafter, Mayfield told Ackman about the misappropriation, and by May 2011 the other principals at MayfieldGentry were aware of the misdeed. They proceeded to hide the theft by affirmatively misleading the pension fund.

The SEC alleges that during a critical budget meeting with fund trustees in 2011, Diaz stressed MayfieldGentry's success in generating a cash return for the pension fund. He stated that "the cash we deliver at the end of the day is the ultimate testimony in terms of what we do." Diaz touted a projection that MayfieldGentry would remit $4.96 million to the pension fund in 2012. Diaz never told the pension fund trustees that the cash remittance would be reduced by more than 60 percent once the stolen money was taken into account. At the same meeting, Matthews claimed that MayfieldGentry had achieved a benchmark-beating 6.8 percent return for the pension fund. He didn't explain that the 6.8 percent return would be materially impacted by the $3.1 million theft.
According to the SEC's complaint, MayfieldGentry and its executives continued to cover up the theft until they finally informed the pension fund on the evening before the SEC filed a complaint against Mayfield and his firm in May 2012 for their participation in a "pay-to-play" scheme involving the former mayor and treasurer of Detroit. Upon learning of the theft, the pension fund promptly terminated its relationship with MayfieldGentry.


The SEC's complaint alleges that MayfieldGentry and Chauncey Mayfield violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Ackman, Bass, Matthews, and Diaz aided and abetted those violations. Mayfield and his firm agreed to pay disgorgement in the amount of $3,076,365.88 and be permanently enjoined from violating Sections 206(1) and 206(2) of the Advisers Act. They neither admit nor deny the allegations in the settlement, which is subject to court approval. In a parallel criminal matter, Mayfield is awaiting sentencing in connection with his guilty plea for participation in the pay-to-play scheme.

The SEC's investigation was conducted jointly by the Chicago Regional Office, the Division of Enforcement's Asset Management Unit, and the Municipal Securities and Public Pensions Unit. The investigation was conducted by Brian D. Fagel, Eric A. Celauro, Peter K.M. Chan, and John J. Sikora, Jr. The SEC's litigation against the remaining four defendants will be led by Timothy S. Leiman.