With the extremely low rates that banks pay on CD’s and the government pays on treasuries many investors who saved their money hoping to use their savings to generate income or at least a steady rate of return are often desperate enough to try placing their money into traditionally non-secure investments. In the following case from the SEC web site the SEC alleges that fraud was committed by an investment advisor who allegedly touted a rate of return that was not justified:
“Washington, D.C., May 13, 2011 – The Securities and Exchange Commission today charged a Monticello, N.Y.-based investment adviser with fraudulently offering and selling securities in two upstate New York real estate funds he managed.
The SEC alleges that Lloyd V. Barriger told investors in the Gaffken & Barriger Fund (G&B Fund) that it was a relatively safe and liquid investment that generated a minimum return of 8 percent per year. However, the fund’s actual performance did not justify these performance claims. The SEC further alleges that Barriger defrauded investors in Campus Capital Corp. by raising money from them to prop up the ailing G&B Fund without disclosing that was how their money was actually being used. Barriger also caused Campus to engage in other transactions that personally benefitted him, unbeknownst to Campus investors.
“In the midst of the credit crisis, Barriger chose to lie about the solvency and liquidity of his fund rather than admit the somber truth of a collapsing business,” said George Canellos, Director of the SEC's New York Regional Office. “He continued to solicit new investor funds based on the same misrepresentations up until the day before the fund collapsed.”
According to the SEC’s complaint filed in federal court in Manhattan, the G&B Fund raised approximately $20 million from January 1998 to March 2008, and Campus raised approximately $12 million from October 2001 to July 2008. Barriger froze the G&B Fund in March 2008 and disclosed its true financial condition to investors.
The SEC’s complaint alleges that Barriger misused G&B Fund assets by causing the fund to pay cash distributions of “Preferred Returns” to those investors who requested them. Barriger also caused the fund to redeem investors at values reflecting the purported accrued 8 percent per year return when the fund lacked the income to support those allocations and payments.
According to the SEC’s complaint, Barriger caused Campus to inject a total of nearly $2.5 million into the G&B Fund between August 2007 and April 2008 when the G&B Fund was in distress. Barriger did not disclose this information to investors.
The SEC’s complaint alleges that Barriger 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 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
In its complaint, the SEC seeks a final judgment permanently enjoining Barriger from future violations of the foregoing provisions and ordering him to pay civil penalties and disgorgement of ill-gotten gains with prejudgment interest.
The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.”
Whether or not the SEC allegations are true will be determined. However, this might be more of a case of very poor judgment instead the out and out fraud cases that involve selling completely bogus securities or in targeting people for goal of stealing their hard earned cash.
I personally know what a difficult time it is to get people to make a large investment whether it is in real estate or an IRA. Of course it is always tempting to tweak the truth here and there in order to make the sale. The problem is that once you tweak the truth it is not much of a stretch to telling out and out lies to sell your product. Financial hard times make it easier still to take out some investor cash here and there in order to shore up personal finances. Many think they might pay it back one day but, financial hard times often stretch out long past the hoped for day of financial recovery. In short, it is easier to have some sympathy for those who commit fraud to save their business than for those who set up their business in order to commit fraud.
This is a photo of the National Register of Historic Places listing with reference number 7000063
Showing posts with label SEC RAISING NET WORTH THRESHOLD. Show all posts
Showing posts with label SEC RAISING NET WORTH THRESHOLD. Show all posts
Monday, June 6, 2011
Thursday, May 19, 2011
SEC ALLEGES SECURITIES FRAUD INVOLVING AN IPO
Becoming very rich by getting investors to place their savings in investments that are mainly non-existent is the modern definition of entrepreneurialism. In the old days such behavior was known as fraud and was generally frowned upon by society. Today such individuals are said to be great capitalist who are willing to take chances. Of course the chances these so called capitalists take is that they may be discovered, pay heavy fines and/or, go to jail. In the following excerpt from the SEC web site the SEC alleges fraud in the matter of an Initial Public Offering:
“Washington, D.C., May 11, 2011 – The Securities and Exchange Commission today charged the co-founders of a New York-based beverage and food carrier company with orchestrating an $8 million securities fraud and spending at least half of investor money for their personal use.
The SEC alleges that Angelo Cuomo of Staten Island and George Garcy of Aventura, Fla., fraudulently obtained investments in E-Z Media Inc. while falsely telling investors that their company owned several patents for beverage and food carriers and had contracts to sell its carriers to such major companies as Heineken, Anheuser Busch, and Aramark Corporation. They also misrepresented their plans to conduct an initial public offering (IPO), their use of offering proceeds, and the projected share price. E-Z Media never actually had any contracts or other agreements to sell its carriers to any major company, including the brand-name companies that Cuomo and Garcy touted to investors. E-Z Media never took even the basic steps to prepare for a purported IPO.
“Garcy and Cuomo conducted an offering fraud that was rife with false statements and omissions to entice unsuspecting investors,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Instead of using the offering proceeds to develop their business, Garcy and Cuomo treated E-Z Media’s bank account as a personal slush fund and diverted millions of dollars to line their pockets.”
According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, E-Z Media designs carriers for use at concession stands at stadiums, arenas, movie theaters, and similar venues. E-Z Media is not registered nor does it file reports with the SEC.
The SEC alleges that Cuomo and Garcy (also known as Jorge Garcia) conducted their scheme from at least 2003 to 2009, making false statements and omissions about their company’s business prospects, assets, and liabilities. E-Z Media never disclosed that its claimed ownership of its main asset – certain patents for the carriers – was contingent on E-Z Media’s payment of $14.5 million to Cuomo, or that E-Z Media’s ownership of those patents may not have been valid in the first place.
The SEC further alleges that E-Z Media also had no reasonable basis for the post-IPO price projections that Garcy and Cuomo presented to investors, because the company had no significant assets or revenues and had substantial liabilities. They never told investors that the SEC sanctioned Garcy in 1997 for improperly offering and selling stock of another company to the public.
According to the SEC’s complaint, Garcy and Cuomo misappropriated and diverted at least $4 million of funds obtained from investors to make payments on personal loans, private school tuition, and rent and mortgages as well as other personal uses. The SEC’s complaint also names four relief defendants for the purposes of recovering fraudulently transferred assets: Cuomo’s sons Ralph Cuomo and Vincent Cuomo, Cuomo’s sister Judith Guido, and New York-based attorney Joseph Lively.
The SEC’s complaint seeks a final judgment permanently enjoining Garcy and Cuomo from future violations of the federal securities laws, barring Garcy and Cuomo from acting as officers and directors of any public company, requiring Garcy and Cuomo to pay financial penalties, and requiring the defendants and relief defendants to disgorge all ill-gotten gains plus prejudgment interest, among other relief.
The SEC thanks the U.S. Attorney’s Office for the Eastern District of New York and the Internal Revenue Service for their assistance in this matter.”
The SEC and other governmental agencies have been working very hard at uncovering cases of fraud however; many in Congress want to stop the SEC and others from doing their jobs by defunding the agencies.
“Washington, D.C., May 11, 2011 – The Securities and Exchange Commission today charged the co-founders of a New York-based beverage and food carrier company with orchestrating an $8 million securities fraud and spending at least half of investor money for their personal use.
The SEC alleges that Angelo Cuomo of Staten Island and George Garcy of Aventura, Fla., fraudulently obtained investments in E-Z Media Inc. while falsely telling investors that their company owned several patents for beverage and food carriers and had contracts to sell its carriers to such major companies as Heineken, Anheuser Busch, and Aramark Corporation. They also misrepresented their plans to conduct an initial public offering (IPO), their use of offering proceeds, and the projected share price. E-Z Media never actually had any contracts or other agreements to sell its carriers to any major company, including the brand-name companies that Cuomo and Garcy touted to investors. E-Z Media never took even the basic steps to prepare for a purported IPO.
“Garcy and Cuomo conducted an offering fraud that was rife with false statements and omissions to entice unsuspecting investors,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Instead of using the offering proceeds to develop their business, Garcy and Cuomo treated E-Z Media’s bank account as a personal slush fund and diverted millions of dollars to line their pockets.”
According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, E-Z Media designs carriers for use at concession stands at stadiums, arenas, movie theaters, and similar venues. E-Z Media is not registered nor does it file reports with the SEC.
The SEC alleges that Cuomo and Garcy (also known as Jorge Garcia) conducted their scheme from at least 2003 to 2009, making false statements and omissions about their company’s business prospects, assets, and liabilities. E-Z Media never disclosed that its claimed ownership of its main asset – certain patents for the carriers – was contingent on E-Z Media’s payment of $14.5 million to Cuomo, or that E-Z Media’s ownership of those patents may not have been valid in the first place.
The SEC further alleges that E-Z Media also had no reasonable basis for the post-IPO price projections that Garcy and Cuomo presented to investors, because the company had no significant assets or revenues and had substantial liabilities. They never told investors that the SEC sanctioned Garcy in 1997 for improperly offering and selling stock of another company to the public.
According to the SEC’s complaint, Garcy and Cuomo misappropriated and diverted at least $4 million of funds obtained from investors to make payments on personal loans, private school tuition, and rent and mortgages as well as other personal uses. The SEC’s complaint also names four relief defendants for the purposes of recovering fraudulently transferred assets: Cuomo’s sons Ralph Cuomo and Vincent Cuomo, Cuomo’s sister Judith Guido, and New York-based attorney Joseph Lively.
The SEC’s complaint seeks a final judgment permanently enjoining Garcy and Cuomo from future violations of the federal securities laws, barring Garcy and Cuomo from acting as officers and directors of any public company, requiring Garcy and Cuomo to pay financial penalties, and requiring the defendants and relief defendants to disgorge all ill-gotten gains plus prejudgment interest, among other relief.
The SEC thanks the U.S. Attorney’s Office for the Eastern District of New York and the Internal Revenue Service for their assistance in this matter.”
The SEC and other governmental agencies have been working very hard at uncovering cases of fraud however; many in Congress want to stop the SEC and others from doing their jobs by defunding the agencies.
Thursday, May 12, 2011
SEC: RAISE WORTH THRESHOLD BEFORE CLIENTS CHARGED BY ADVISERS
The following announcement came from the SEC web site. In this announcement the SEC discusses proposed changes to how a threshold is determined before a financial adviser can charge a fee:
Washington, D.C., May 10, 2011 – The Securities and Exchange Commission today provided public notice of its plan to raise certain dollar thresholds that would need to be met before investment advisers can charge their clients performance fees. The SEC seeks public comment on the plan, which would satisfy a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Currently, Rule 205-3 under the Investment Advisers Act allows an adviser to charge its clients performance fees in certain circumstances. Two of the circumstances are:
The client has at least $750,000 under management with the adviser.
The adviser reasonably believes the client has a net worth of more than $1.5 million.
Section 418 of the Dodd-Frank Act requires the SEC to issue an order to adjust for inflation these dollar amount thresholds by July 21, 2011, and every five years thereafter. As a result, the SEC issued today’s notice that it intends to issue an order to revise the dollar amount tests to $1 million for assets under management and $2 million for net worth.
The Commission also proposed related amendments to Rule 205-3 that would:
Provide the method for calculating future inflation adjustments of the dollar amount tests.
Exclude the value of a person’s primary residence from the determination of whether a person meets the net worth standard.
Modify the transition provisions of the rule to take into account performance fee arrangements that were permissible at the time the adviser and client entered into their advisory contract.”
One important change noted above is the provision to exclude the value of a person’s primary residence when computing net worth. After the real estate collapse and current weakness in the real estate market, the determination of the value of a person’s home seems to be precarious. In many areas of the United States the value of homes is still falling with no end in sight.
Washington, D.C., May 10, 2011 – The Securities and Exchange Commission today provided public notice of its plan to raise certain dollar thresholds that would need to be met before investment advisers can charge their clients performance fees. The SEC seeks public comment on the plan, which would satisfy a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Currently, Rule 205-3 under the Investment Advisers Act allows an adviser to charge its clients performance fees in certain circumstances. Two of the circumstances are:
The client has at least $750,000 under management with the adviser.
The adviser reasonably believes the client has a net worth of more than $1.5 million.
Section 418 of the Dodd-Frank Act requires the SEC to issue an order to adjust for inflation these dollar amount thresholds by July 21, 2011, and every five years thereafter. As a result, the SEC issued today’s notice that it intends to issue an order to revise the dollar amount tests to $1 million for assets under management and $2 million for net worth.
The Commission also proposed related amendments to Rule 205-3 that would:
Provide the method for calculating future inflation adjustments of the dollar amount tests.
Exclude the value of a person’s primary residence from the determination of whether a person meets the net worth standard.
Modify the transition provisions of the rule to take into account performance fee arrangements that were permissible at the time the adviser and client entered into their advisory contract.”
One important change noted above is the provision to exclude the value of a person’s primary residence when computing net worth. After the real estate collapse and current weakness in the real estate market, the determination of the value of a person’s home seems to be precarious. In many areas of the United States the value of homes is still falling with no end in sight.
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