INVESTMENT ADVISOR ALLEGEDLY USED SOCIAL MEDIA WEBSITES TO SELL FAKE SECURITEIS

The following excerpt is from the SEC website:

“Washington, D.C., Jan. 4, 2012 — The Securities and Exchange Commission today charged an Illinois-based investment adviser with offering to sell fictitious securities on LinkedIn and issued two alerts in an agency-wide effort to highlight the risks investors and advisory firms face when using social media.

The SEC’s Division of Enforcement alleges that Anthony Fields of Lyons, Ill. offered more than $500 billion in fictitious securities through various social media websites. For example, he used LinkedIn discussions to promote fictitious “bank guarantees” and “medium-term notes.” The postings resulted in interest from multiple purported potential buyers.

“Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes,” said Robert B. Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.”
According to the SEC’s order instituting administrative proceedings against Fields, he made multiple fraudulent offers through his two sole proprietorships – Anthony Fields & Associates (AFA) and Platinum Securities Brokers. Fields provided false and misleading information concerning AFA’s assets under management, clients, and operational history to the public through its website and in SEC filings. Fields also failed to maintain required books and records, did not implement adequate compliance policies and procedures, and held himself out to be a broker-dealer while he was not registered with the SEC.
One of the alerts issued today – a National Examination Risk Alert titled“Investment Adviser Use of Social Media” – provides staff observations based on a review of investment advisers of varying sizes and strategies that use social media. In growing numbers, registered investment adviser firms are using social media to communicate with existing and potential clients, promote services, educate investors, and recruit new employees.

“As investment advisers increasingly utilize social media to communicate with clients and potential clients, firms need to be mindful of the applicable standards governing those communications,” said Carlo di Florio, Director of the Office of Compliance Inspections and Examinations (OCIE).

The alert reviews concerns that may arise from use of social media by firms and their associated persons, and offers suggestions for complying with the antifraud, compliance, and recordkeeping provisions of the federal securities laws. The alert notes that firms should consider how to implement new compliance programs or revisit their existing programs in the face of rapidly changing technology.

The SEC also issued an Investor Alert titled “Social Media and Investing: Avoiding Fraud” prepared by the Office of Investor Education and Advocacy. The alert aims to help investors be better aware of fraudulent investment schemes that use social media, and provides tips for checking the backgrounds of advisers and brokers. A new Investor Bulletin titled “Social Media and Investing: Understanding Your Accounts” contains best practices including privacy settings, security tips, and password selection aimed to help social media users protect their personal information and avoid fraud.

“More and more, investors are using social media to help them with investment decisions. While social media can provide many benefits for investors, it also makes an attractive target for fraudsters. The Investor Alert provides some useful tips to help investors look out for securities fraud online,” said Lori J. Schock, Director of the Office of Investor Education and Advocacy.”

INVESTMENT FIRM HEAD GETS 20 YEAR PRISON TERM FOR MAIL FRAUD AND MONEY LAUNDERING

The following excerpt is from the SEC website:

“The U.S. Securities and Exchange Commission announced today that on December 13, 2011, the Honorable William Stiehl, United States District Court judge, sentenced Edward Lynn Moskop, 64, of Belleville, Illinois, to the maximum statutory penalties of 240 months’ imprisonment on Mail Fraud and 120 months on Money Laundering, to be served concurrently. Judge Stiehl also ordered Moskop to pay more than $1.49 million in restitution to his victims. The sentencing followed Moskop’s August 3, 2011 plea of guilty to the two count indictment.

Moskop's 20-year prison sentence was the culmination of his long-time investment fraud and misappropriation scheme. In the criminal case, the United States Attorney’s office for the Southern District of Illinois alleged that Moskop, operating as Financial Services Moskop and Associates, Inc., acted as a securities broker for several customers by making investments on their behalf. According to the U.S. Attorney’s office, from 1991 to 2010, Moskop persuaded customers to provide him with funds for investment. But, according to the U.S. Attorney’s office, instead of making the investment, Moskop kept the funds for his own use. The U.S. Attorney’s office alleged that Moskop also provided his customers with fraudulent periodic investment statements showing false interest and gains in the investments. According to the U.S. Attorney’s office, Moskop obtained by fraud approximately $2,400,000 from 25 victims. The U.S. Attorney’s office alleged that Moskop’s victims included his relatives, individuals referred by trusted friends and attorneys, a local Veterans of Foreign War Post, and long-time customers of his insurance business.

The criminal charges against Moskop are related to the conduct underlying the SEC’s civil action against Moskop and his company, Financial Services Moskop & Associates. On November 19, 2010, the SEC filed an emergency civil action in the United States District Court for the Northern District of Illinois to halt an ongoing fraud on investors conducted by Moskop and his company. In its complaint, the SEC alleged that from 1989 until the filing of the SEC’s action against Moskop and his company, Moskop misappropriated most of the life savings of at least two elderly investors. On the same day the SEC filed its case, the Honorable Rebecca R. Pallmeyer, United States District Court Judge, granted the SEC’s motion for emergency relief, entering a temporary restraining order against Moskop and his company and an order freezing their assets. On November 27, 2010, the court entered a preliminary injunction against Moskop and his company, and on July 21, 2011, the court entered a permanent injunction against Moskop and his company and continued the order freezing their assets. The SEC's action, which is ongoing, seeks disgorgement of the ill-gotten gains received by Moskop and his company, as well as civil penalties.”

FOUNDER OF BEVERLY HILLS FINANCIAL FIRM PLEADS GUILTY TO BID-RIGGING AND FRAUD IN MUNICIPAL BOND MARKET

The following excerpt is from the Department of Justice website:

“WASHINGTON — A Beverly Hills, Calif.,-based financial products and services firm, and its founder and owner pleaded guilty today in the Southern District of New York for their participation in bid-rigging and fraud conspiracies related to contracts for the investment of municipal bond proceeds and other related municipal finance contracts, the Department of Justice announced.

Rubin/Chambers, Dunhill Insurance Services, also known as CDR Financial Products, and David Rubin, CDR founder and owner, pleaded guilty before U.S. District Judge Victor Marrero in the Southern District of New York. Rubin and CDR, along with Zevi Wolmark, also known as Stewart Wolmark, the former chief financial officer and managing director of CDR, and Evan Andrew Zarefsky, a vice president of CDR, were indicted on Oct. 29, 2009. The trial for Wolmark and Zarefsky is scheduled to begin on Jan. 3, 2012, in the Southern District of New York.

Rubin and CDR each pleaded guilty to participating in separate bid-rigging and fraud conspiracies with various financial institutions and insurance companies and their representatives. These institutions and companies, or “providers,” offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States. The public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects. Rubin and CDR also pleaded guilty to one count of wire fraud in connection with those schemes.

“Mr. Rubin and his company engaged in fraudulent and anticompetitive conduct that harmed municipalities and other public entities,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Justice Department’s Antitrust Division. “Today’s guilty pleas are an important development in our continued efforts to hold accountable those who violate the antitrust laws and subvert the competitive process in our financial markets.”

According to court documents, CDR was hired by public entities that issue municipal bonds to act as their broker and conduct what was supposed to be a competitive bidding process for contracts for the investment of municipal bond proceeds. Competitive bidding for those contracts is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds.

During his plea hearing, Rubin admitted that, from 1998 until 2006, he and other co-conspirators supplied information to providers to help them win bids, solicited intentionally losing bids, and signed certifications that contained false statements regarding whether the bidding process for certain investment agreements complied with relevant Treasury Regulations. Additionally, Rubin admitted that he and other co-conspirators solicited fees from providers, which were in fact payments to CDR for rigging or manipulating bids for certain investment agreements so that a particular provider would win that agreement at an artificially determined price.

“Mr. Rubin and his firm were trusted with public money and confidence to assist municipalities with issuing bonds,” said FBI Assistant Director in Charge Janice K. Fedarcyk. “Contrary to his agreement and the law, Mr. Rubin shirked his responsibilities while defrauding taxpayers. Thankfully, this bid-rigging scheme, where Mr. Rubin decided the winners and losers, is over.”

“IRS is the federal agency responsible for compliance with tax laws applicable to the issuance of tax-exempt municipal bonds,” said Special Agent in Charge Charles R. Pine of the Internal Revenue Service-Criminal Investigation (IRS-CI) New York Field Office. “Today’s guilty pleas by David Rubin and CDR are the result of a coordinated effort by the Department of Justice and IRS-Criminal Investigation. Depriving municipalities of investment earnings and diverting arbitrage via illegal agreements and kickbacks will not be tolerated. IRS-Criminal Investigation agents will continue to investigate fraud in the municipal bond market and recommend prosecution against those who have participated in the fraudulent scheme.”

The bid–rigging conspiracy with which Rubin is charged carries a maximum penalty of 10 years in prison and a $1 million criminal fine.The fraud conspiracy with which Rubin is charged carries a maximum penalty of five years in prison and a $250,000 criminal fine.The wire fraud charge with which Rubin is charged carries a maximum penalty of 20 years in prison and a $250,000 criminal fine. The maximum fines for each of these offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

CDR faces a maximum criminal fine on the bid-rigging charge of $100 million. The fraud conspiracy and wire fraud offenses with which CDR is charged each carry a maximum criminal fine of $500,000. The maximum fines for each of these offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Rubin is the tenth individual to plead guilty in an ongoing federal investigation into the municipal bonds industry, which is being conducted by the Antitrust Division’s New York Field Office, the FBI and IRS-CI.
In addition, Dominick Carollo and Peter S. Grimm, formerly of GE Funding Capital Market Services, and Steven E. Goldberg, formerly of GE Funding Capital Market Services and FSA, were indicted on July 27, 2010, and are scheduled to begin trial in April 2012. Three former UBS employees, Peter Ghavami, Gary Heinz and Michael Welty, were indicted on Dec. 9, 2010.”

COMPANY AND EXECUTIVES CHARGED BY SEC OVER DISCLOSURES INVOLVING LIFE SETTLEMENTS

 The following excerpt is from the SEC website:

Jan. 3, 2012 

“Washington, D.C., — The Securities and Exchange Commission today charged Texas-based financial services firm Life Partners Holdings Inc. and three of its senior executives for their involvement in a fraudulent disclosure and accounting scheme involving life settlements.

The SEC alleges that Life Partners chairman and CEO Brian Pardo, president and general counsel Scott Peden, and chief financial officer David Martin misled shareholders by failing to disclose a significant risk to Life Partners’ business: the company was systematically and materially underestimating the life expectancy estimates it used to price transactions. Life expectancy estimates are a critical factor impacting the company’s revenues and profit margins as well as the company’s ability to generate profits for its shareholders.

The SEC alleges that Life Partners and the three executives were involved in disclosure violations and improper accounting that Life Partners used to overvalue assets held on the company’s books and create the appearance of a steady stream of earnings from brokering life settlement transactions. The SEC further charged Pardo and Peden with insider trading in their shares of Life Partners stock while in possession of material, non-public information indicating that the company had systematically and materially underestimated life expectancy estimates.

“Life Partners duped its shareholders by employing an unqualified medical doctor to assign baseless life expectancy estimates to the underlying insurance policies,” said Robert Khuzami, Director of the SEC's Division of Enforcement. “This deception misled shareholders into thinking that the company's revenue model was sustainable when in fact it was illusory.”

David Woodcock, Director of the SEC’s Fort Worth Regional Office, added, “The senior-most executives at Life Partners concealed significant risks to the business, manipulated financial statements with improper accounting, and knowingly profited from their misconduct by executing insider trades based on information that was not available to the public.”

Life Partners is a Nasdaq-traded company that generates virtually all of its revenues from brokering life settlements. Life settlements involve the purchase and sale of fractional interests of life insurance policies in the secondary market. In life settlement transactions, life insurance policy owners sell their policies to investors in exchange for a lump-sum payment. The dollar amount offered by the investor takes into account the insured’s life expectancy and the terms and conditions of the insurance policy.

According to the SEC’s complaint filed in federal district court in Waco, Texas, Life Partners misrepresented and failed to disclose in public filings with the SEC that the company’s systematic use of materially underestimated life expectancy estimates constituted a material risk to the company’s revenues. Beginning in 1999, the company used life expectancy estimates provided by Dr. Donald T. Cassidy, a Reno, Nev.-based doctor with no actuarial training or prior experience rendering life expectancy estimates. The SEC alleges that Life Partners and Pardo failed to conduct any meaningful due diligence on Cassidy’s qualification to act as a life expectancy underwriter and instructed the doctor to use a life expectancy methodology that was created by the company’s former underwriter, a part-owner of Life Partners. Pardo, Peden, and Martin were aware that the Cassidy-rendered life expectancy estimates were systematically and materially short.

The SEC alleges that Life Partners materially misstated net income from fiscal year 2007 through the third quarter of fiscal year 2011 by prematurely recognizing revenues and understating impairment expense related to its investments in life settlements. Life Partners improperly accelerated revenue recognition from the closing date to the date it obtained a non-binding agreement with the policy owner to sell a life settlement. Life Partners use of Cassidy’s life expectancy estimates as part of its impairment calculations caused the company to understate millions of dollars in impairment expense.

The SEC further alleges that during this time, Pardo and Peden sold approximately $11.5 million and $300,000 respectively of Life Partners stock at inflated prices while in possession of material non-public information about the company’s dependency on short life expectancy estimates to generate revenues.

In addition to the alleged violations of the antifraud and reporting provisions of the federal securities laws by Life Partners, Pardo, Peden and Martin, the SEC’s complaint also seeks repayment to the company of stock sales profits and bonuses received by Pardo and Martin pursuant to Section 304 of the Sarbanes Oxley Act of 2002.”

SEC SUES EXECUTIVE AND HIS COMPANIES FOR ALLEGED FRAUDULENT NOTE OFFERINGS

The following excerpt is from the SEC website:

December 28, 2011
“On August 10, 2011, the Securities and Exchange Commission filed suit in the United States District Court for the Southern District of Texas against Damian Omar Valdez of New York and two Houston-area firms he controlled, Evolution Capital Advisors (“Evolution Capital”) and Evolution Investment Group I (“EIGI”). Evolution Capital was an investment adviser registered with the Commission until June 2010. The firms and Valdez raised at least $10 million from more than 80 investors through two fraudulent note offerings.
After a contested evidentiary hearing on October 19 and 20, 2011, the Court found that: (1) Valdez, Evolution Capital, and EIGI misled investors to believe that the notes were safe and secured by assets guaranteed by the United States government; (2) the defendants falsely promised to use leverage to purchase the assets securing the notes; (3) the assets securing the notes were subject to significant undisclosed default and prepayment risk; (4) the defendants paid themselves more than $2.4 million in fees and expenses and used approximately $2.7 million from the second note offering to make Ponzi payments to investors in the first note offering; (5) because of defaults and prepayments on the underlying assets, failure to obtain leverage, and excessive Ponzi payments and fees, the defendants lacked sufficient assets to repay investors in accordance with the notes; and (6) the defendants would have continued taking all monies from the account each month as “profit” had the Commission not brought its enforcement action. The Court specifically found that Defendant Valdez acted with fraudulent intent.
Based on these findings, the Court granted the Commission’s motion for preliminary and permanent injunction, asset freeze, and appointment of a receiver. The Court also permanently froze the defendants’ assets. In addition, the Court specifically enjoined the defendants against further violations of the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission’s requests for disgorgement of ill-gotten gains plus prejudgment interest, as well as civil penalties, remain pending.”

SEC HAS 12 TIPS FOR SAVING AND INVESTING

The following excerpt is from the SEC website:

Below are some suggestions on how to become a smarter investor in 2012.
Tip #12 Pay off high-interest debt. Paying off high-interest debt may be your best investment strategy. Few investments pay off as well as, or with less risk than, eliminating high-interest debt on credit card or other loans.

Tip #11 Pay yourself first. Regular automatic deductions from your paycheck or bank account into a savings or investment account will keep you on track toward your short and long-term financial goals.

Tip #10 Boost your 'rainy day' fund. Many experts recommend keeping about six months of expenses in a federally insured account to cover sudden unemployment or other emergencies.

Tip #9 Help stop affinity fraud in your community. Affinity fraud refers to investment scams that prey upon members of identifiable groups. Learn how you can help protect yourself and your community (.pdf file) from the potentially devastating impact of affinity fraud.

Tip #8 Don't put all your eggs in one basket. Think twice before investing heavily in shares of your employer's stock or any individual investment.

Tip #7 Take advantage of 'free money' (if available). In many employer-sponsored retirement plans, the employer will match some or all of your contributions. If your employer offers a retirement plan and you do not contribute enough to get your employer's match, you are passing up 'free money' for your retirement savings.

Tip #6 Beware of promises of 'guaranteed returns.' Promises of high returns, with little or no risk, are classic warning signs for fraud. If it sounds too good to be true, it probably is.

Tip #5 Understand the fees you pay to buy, own, and sell your investments. Investment costs shouldn't take you by surprise. Fees and expenses vary from product to product and can take a huge bite out of your returns. Even small differences in investment costs can translate into large differences in returns over time.

Tip #4 Teach your children about good financial habits. Recent research suggests that direct teaching by parents is an important predictor of a young person's future financial success.

Tip #3 Research investments before handing over any money. Smart investors always check whether an investment is registered with the SEC by using the SEC's EDGAR database or contacting the SEC's toll-free investor assistance line at (800) 732-0330.

Tip #2 Check the background of your investment professional. Many investors do not know that you can check the background of a broker or investment adviser. It's free and easy - and a key step for avoiding investment fraud.

Tip #1 Visit Investor.gov before making your next investment decision. Created by the U.S. Securities and Exchange Commission, Investor.gov is a free, easy to use web site with objective information on investing wisely and avoiding fraud. You can learn about financial products, research investment professionals, and find more information about the tips above.