Statement at Open Meeting on Regulation SCI

Statement at Open Meeting on Regulation SCI

SEC ANNOUNCES ARREST OF MAN FOR ROLE IN INSIDER TRADING CASE INVOLVING A TIP

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23131 / November 14, 2014

USA v. Robert H. Bray, Case No. 1:14-MJ-5119-JGD in the United States District Court for the District of Massachusetts

USA v. John Patrick O'Neill, Case No. 1:14-cr-10317-WGY in the United States District Court for the District of Massachusetts

Securities and Exchange Commission v. J. Patrick O'Neill and Robert H. Bray, Civil Action No. 1:14-cv-13381 (District of Massachusetts, Complaint filed August 18, 2014)

Boston-Area Defendant in SEC Insider Trading Case Faces Criminal Charges

The Securities and Exchange Commission announced that on November 12, 2014, Robert H. Bray ("Bray") was arrested by the Federal Bureau of Investigation and charged by a criminal complaint with participating in an insider trading conspiracy for trading in the stock of Wainwright Bank & Trust Company ("Wainwright") based on a tip he received from a friend.

The Commission previously charged Bray and J. Patrick O'Neill ("O'Neill") with insider trading in a civil action filed on August 18, 2014. The criminal charges are based on the same conduct underlying the SEC's action. The SEC's complaint alleged that O'Neill, a former senior vice president at Eastern Bank Corporation, learned through his job responsibilities that his employer was planning to acquire Wainwright. According to the SEC's complaint, O'Neill tipped Bray, a friend and fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase 31,000 shares of Wainwright. After the public announcement of the acquisition caused Wainwright's stock price to increase nearly 100 percent, Bray sold all of his shares during the next few months for nearly $300,000 in illicit profits.

The Commission also announced that on October 31, 2014, the United States Attorney's Office for the District of Massachusetts filed a criminal Information against O'Neill. The criminal Information charges O'Neill with one count of conspiracy to commit securities fraud. O'Neill was initially charged by a criminal complaint when he was arrested in August 2014.

The SEC's action, which is pending, seeks injunctions against each of the defendants from further violations of the charged provisions of the federal securities laws, disgorgement of ill-gotten gains, and civil penalties.

SEC CHARGES THAT CEO ISSUED "FALSE AND MISLEADING PRESS RELEASES"

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a San Francisco-based penny stock company CEO with defrauding investors by issuing false and misleading press releases portraying his purported marketing and infomercial company as a successful venture in order to drive the stock price up while he covertly sold millions of shares into the public market for more than $300,000 in illicit profits.

According to the SEC’s complaint filed against Joseph A. Noel in federal district court in San Francisco, the deceptive press releases about his company YesDTC Holdings touted exclusive distribution rights, licensing agreements, and certain products purportedly certified by the government.  Noel’s promotional campaigns based on such false information caused a spike in YesDTC’s thinly-traded stock and enabled him to dump millions of his own shares for a profit.  To conceal his sales, Noel sold the shares through a company he created in his teenage daughter’s name without disclosing as required that he was actually selling the shares.

The SEC also suspended trading in YesDTC stock today, and instituted an administrative proceeding to revoke its registration.

“Noel issued false press releases to pump up the price of the stock and set up a nominee company to dump the shares into the market to unwitting investors,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “We’re always on the lookout for penny stock company CEOs who manipulate the market to line their own pockets.”    

The SEC’s complaint charges Noel with violating antifraud and registration provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest and a financial penalty as well as a permanent injunction.  The SEC also is seeking an officer-and-director bar and a penny stock bar against Noel.

The SEC’s investigation was conducted by Heather E. Marlow and David Berman of the San Francisco Regional Office, and the case is supervised by Tracy Davis.  The SEC’s litigation will be led by Aaron Arnzen and Ms. Marlow.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of California and the Federal Bureau of Investigation.

SEC FILES EMERGENCY ACTION IN ALLEGED MILLION DOLLAR MISAPPROPRIATION CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23130 / November 12, 2014

Securities and Exchange Commission v. Eric W. Johnson, Civil Action No. 1:14-cv-08825

On November 5, 2014, the Securities and Exchange Commission filed an emergency action alleging that from at least 2004 to the present, Eric W. Johnson, of Hinsdale, Illinois, misappropriated at least $1 million from certain of his advisory clients. The SEC's complaint alleged that he did so while affiliated with a Chicago-based broker-dealer and investment adviser. The SEC's complaint further alleged that Johnson admitted to the SEC that he misappropriated the funds by forging his clients' signatures on more than 100 separate wire transfer instructions so that he could funnel cash from his clients' accounts directly into his own personal bank account. The complaint charged Johnson with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

After a hearing on the matter, the Honorable Edmond E. Chang of the United States District Court, Northern District of Illinois, issued an Order granting injunctive relief, freezing assets and other emergency relief including expedited discovery.

The SEC's investigation in this matter is continuing.

SEC ANNOUNCES CHARGES AGAINST 2 OPERATORS IN HIGH-YIELD INVESTMENT SCHEME

FROM:  U.S. SECURITIES AND INVESTMENT COMMISSION 

The Securities and Exchange Commission announced charges against two India-based operators of an alleged high-yield investment scheme seeking to exploit investors through pervasive social media pitches on Facebook, YouTube, and Twitter.

The SEC’s Enforcement Division alleges that Pankaj Srivastava and Nataraj Kavuri offered “guaranteed” daily profits as they anonymously solicited investments for their purported investment management company called Profits Paradise.  They invited investors to deposit funds that supposedly would be pooled with money from other investors and traded on foreign exchanges as well as in stocks and commodities.  They created a Profits Paradise website and related social media sites to describe the profits as “huge,” “lucrative,” and “handsome,” and they characterized the risk as “minimal.”

The SEC’s Enforcement Division alleges that the guaranteed returns were false, and that the investments being offered bore the hallmark of a fraudulent high-yield investment program.  Srivastava and Kavuri attempted to conceal their identities by supplying a fictitious name and contact information when registering Profits Paradise’s website address.  They also communicated under the fake names of “Paul Allen” and “Nathan Jones.”  After the SEC began its investigation into the investment offering, the Profits Paradise website was discontinued.

“Srivastava and Kavuri used excessive secrecy in their effort to swindle investors through social media outreach and a website that attracted as many as 4,000 visitors per day,” said Stephen Cohen, Associate Director of the SEC’s Division of Enforcement.  “Our investigation stopped the constant solicitations once the website disappeared, and successfully tracked down the identities of the perpetrators behind those fraudulent solicitations.”

According to the SEC’s order instituting administrative proceedings, Srivastava and Kavuri used the Profits Paradise website and YouTube videos to detail three investment plans with terms of 120 business days.  The first plan purportedly yielded daily interest of 1.5 percent on investments of $10 to $749.  The second plan purportedly yielded 1.75 percent on investments of $750 to $3,499.  And the third plan purportedly yielded 2 percent on investments of $3,500 and above.  Postings on Profit Paradise’s Facebook page promised investors they could “Enjoy Hassle Free Income” and advertised a “5% Referral Commission.”  The scheme also utilized a Profits Paradise Twitter account to steer potential investors to the Profits Paradise website, and Srivastava and Kavuri created a Google Plus page to promote the investment opportunity.

The SEC’s Enforcement Division alleges that Srivastava and Kavuri violated Sections 17(a)(1) and (3) of the Securities Act of 1933, and will litigate the matter before an administrative law judge.

The SEC’s investigation was conducted by Carolyn Kurr and Daniel Rubenstein, and the case was supervised by C. Joshua Felker.  The SEC’s litigation will be led by Kenneth Donnelly.  The SEC appreciates the assistance of the Securities and Exchange Board of India as well as the Autorité des Marchés Financiers in Quebec, the Ontario Securities Commission, and the Securities and Futures Commission in Hong Kong.

The SEC today updated an investor alert educating investors about how social media may be used to promote so-called high-yield investment programs and other fraudulent investment schemes.

“We urge investors to exercise extreme caution if they are approached to invest in a website promising incredible returns with minimal or no risk.  So-called high-yield investment programs are often frauds,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.

SEC INVESTOR ALERT REGARDING SOCIAL MEDIA AND INVESTMENTS

FROM:  U.S. SECURITIES AND EXCHANGE

Updated Investor Alert: Social Media and Investing - Avoiding Fraud

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help investors be better aware of fraudulent investment schemes that may involve social media. U.S. retail investors are increasingly turning to social media, including Facebook, YouTube, Twitter, LinkedIn and other online networks for information about investing. Whether it be for research on particular stocks, background information on a broker-dealer or investment adviser, guidance on an overall investing strategy, up-to-date news, or to simply discuss the markets with others, social media has become a key tool for U.S. investors.

While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Social media, and the Internet generally, offer a number of attributes criminals may find attractive. Social media lets fraudsters contact many different people at a relatively low cost. It is also easy to create a site, account, email, direct message, or webpage that looks and feels legitimate – and that feeling of legitimacy gives criminals a better chance to convince you to send them your money. Finally, it can be difficult to track down the true account holders that use social media. That potential for anonymity can make it harder for fraudsters to be held accountable. As a result, investors need to use caution when using social media and considering an investment.

What You Can Do To Protect Yourself - Tips to Help Avoid Fraud Online

So, what can individual investors do to protect themselves while using social media? The key to avoiding investment fraud on the Internet is to be an educated investor. Below are five tips to help you avoid investment fraud on the Internet:

Be Wary of Unsolicited Offers to Invest

Investment fraud criminals look for victims on social media sites, chat rooms, and bulletin boards. If you see a new post on your wall, a tweet mentioning you, a direct message, an e-mail, or any other unsolicited – meaning you didn’t ask for it and don’t know the sender – communication regarding a so-called investment opportunity, you should exercise extreme caution. An unsolicited sales pitch may be part of a fraudulent investment scheme. Many scams use spam to reach potential victims. For example, with a bulk e-mail program, spammers can send personalized messages to millions of people at once for much less than the cost of cold calling or traditional mail. If you receive an unsolicited message from someone you don’t know containing a “can’t miss” investment, your best move is to pass up the “opportunity” and report it to the SEC Complaint Center.

Look out for Common “Red Flags”

Wherever you come across a recommendation for an investment – be it on the Internet or from a personal friend (or both), the following “red flags” should cause you to use extreme caution in making an investment decision:

It sounds too good to be true. Any investment that sounds too good to be true probably is. Compare any promised return with the returns on well-known stock indexes. Any investment opportunity that claims you’ll receive substantially more than that could be highly risky – or be an outright fraud. Be extremely wary of claims on a website that an investment will make “INCREDIBLE GAINS” or is a “BREAKOUT STOCK PICK” or has “HUGE UPSIDE AND ALMOST NO RISK!” Claims like these are hallmarks of extreme risk or outright fraud.
The promise of “guaranteed” returns. Every investment entails some level of risk, which is reflected in the rate of return you can expect to receive. If your investment is 100% safe, you’ll most likely get a low return. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or that the investment is a “can’t miss opportunity.” Don’t believe it.
Pressure to buy RIGHT NOW.  Don’t be pressured or rushed into buying an investment before you have a chance to think about – and investigate – the “opportunity.” Be especially skeptical of investments that are pitched as “once-in-a-lifetime” opportunities, particularly when the promoter bases the recommendation on “inside” or confidential information.
Look out for “Affinity Fraud” Never make an investment based solely on the recommendation of a member of an organization or group to which you belong, especially if the pitch is made online. An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catered to an interest you have, may be an affinity fraud. Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. Even if you do know the person making the investment offer, be sure to check out everything – no matter how trustworthy the person seems who brings the investment opportunity to your attention. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.

Be Thoughtful About Privacy and Security Settings

Investors who use social media websites as a tool for investing should be mindful of the various features on these websites in order to protect their privacy and help avoid fraud. Understand that unless you guard personal information, it may be available not only for your friends, but for anyone with access to the Internet – including fraudsters. For more information on privacy and security settings, as well as other guidance regarding setting up on-line accounts with an eye toward avoiding investment fraud, see our Investor Bulletin Social Media and Investing: Understanding Your Accounts.

Ask Questions and Check Out Everything

Be skeptical and research every aspect of an offer before making a decision. Investigate the investment thoroughly and check the truth of every statement you are told about the investment. Never rely on a testimonial or take a promoter’s word at face value. You can check out many investments using the SEC’s EDGAR filing system or your state’s securities regulator. You can check out registered brokers at FINRA’s BrokerCheck website and registered investment advisers at the SEC’s Investment Adviser Public Disclosure website. See our publication “Ask Questions” for more about information you should gather before making an investment.

A Few Common Investment Scams Using Social Media and the Internet

While fraudsters are constantly changing the way they approach victims on the Internet, there are a number of common scams of which you should be aware. Here are a few examples of the types of schemes you should be on the lookout for when using social media:

“Pump-and-Dumps” and Market Manipulations

“Pump-and-dump” schemes involve the touting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace. These false claims could be made on social media such as Facebook and Twitter, as well as on bulletin boards and chat rooms. Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch. Often the promoters will claim to have “inside” information about an impending development or to use an “infallible” combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is “pumped” up by the buying frenzy they create. Once these fraudsters “dump” their shares and stop hyping the stock, the price typically falls, and investors lose their money.

For an example of an actual case, see Securities and Exchange Commission v. Carol McKeown, Daniel F. Ryan, Meadow Vista Financial Corp., and Downshire Capital, Inc., Civil Action No. 10-80748-CIV-COHN (S.D. Fla. June 23, 2010).

Fraud Using “Research Opinions,” Online Investment Newsletters, and Spam Blasts

While legitimate online newsletters may contain useful information about investing, others are merely tools for fraud. Some companies pay online newsletters to “tout” or recommend their stocks. Touting isn’t illegal as long as the newsletters disclose who paid them, how much they’re getting paid, and the form of the payment, usually cash or stock. But fraudsters often lie about the payments they receive and their track records in recommending stocks. Fraudulent promoters may claim to offer independent, unbiased recommendations in newsletters when they stand to profit from convincing others to buy or sell certain stocks – often, but not always, penny stocks. The fact that these so-called “newsletters” may be advertised on legitimate websites, including on the online financial pages of news organizations, does not mean that they are not fraudulent. To learn more, read our tips for checking out newsletters.

For an example of an actual case, see Securities and Exchange Commission v. Wall Street Capital Funding LLC, Philip Cardwell, Roy Campbell, and Aaron Hume, Civil Action No. 11-cv-20413-DLG (S.D. Fla. February 7, 2011).

High-Yield Investment Programs

The Internet is awash in so-called “high-yield investment programs” or “HYIPs.” These are unregistered investments typically run by unlicensed individuals – and they are often frauds. The hallmark of an HYIP scam is the promise of incredible returns at little or no risk to the investor. A HYIP website might promise annual (or even monthly, weekly, or daily) returns of 30 or 40 percent – or more. Some of these scams may use the term “prime bank” program. If you are approached online to invest in one of these, you should exercise extreme caution - they are likely frauds.

Fraudsters may use social media to promote a HYIP website or may encourage investors to use social media to share information about a HYIP website with others. For example, in In the Matter of Srivastava and Kavuri, the respondents allegedly used social media to promote their HYIP website, advertising “huge,” “lucrative,” “handsome,” and “guaranteed” profits with “minimal” risk. They also allegedly encouraged their Twitter followers to “use a referral link and promotional banner on social media, blog, forum, and email to share [the HYIP website] with interested parties.” Additionally, according to the Commission’s Order, they created a Facebook page and YouTube video that promoted the HYIP website and advertised supposed daily returns of 1.5% to 2%.  

Internet-Based Offerings

Offering frauds come in many different forms. Generally speaking, an offering fraud involves a security of some sort that is offered to the public, where the terms of the offer are materially misrepresented. The offerings, which can be made online, may make misrepresentations about the likelihood of a return. For example, in a recent case, Securities and Exchange Commission v. Imperia Invest IBC, the fraudsters allegedly used a website to offer investors a “guaranteed return” of 1.2% per day. Other online offerings may not be fraudulent per se, but may nonetheless fail to comply with the applicable registration provisions of the federal securities laws. While the federal securities laws require the registration of solicitations or “offerings,” some offerings are exempt. Always determine if a securities offering is registered with the SEC or a state, or is otherwise exempt from registration, before investing.

Where can I go for help?

Investors who learn of investing opportunities from social media should always be on the lookout for fraud. If you have a question or concern about an investment, or you think you have encountered fraud, please contact the SEC, FINRA, or your state securities regulator to report the fraud and to get assistance.

U.S. Securities and Exchange Commission
Office of Investor Education and Advocacy
100 F Street, NE
Washington, DC 20549-0213
Telephone: (800) 732-0330
Fax: (202) 772-9295

Financial Industry Regulatory Authority (FINRA)
FINRA Complaints and Tips
9509 Key West Avenue
Rockville, MD 20850
Telephone: (301) 590-6500
Fax: (866) 397-3290

North American Securities Administrators Association (NASAA)
750 First Street, NE
Suite 1140
Washington, DC 20002
Telephone: (202) 737-0900
Fax: (202) 783-3571