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.

Investor Bulletin: Broker’s Miscellaneous Fees

Investor Bulletin: Broker’s Miscellaneous Fees

FUND MANAGER SETTLES SEC INSIDER TRADING CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23151 / December 8, 2014

Securities and Exchange Commission v. Reema D. Shah and Robert W. Kwok, Civil Action No. 12-CV-4030 (S.D.N.Y.) (ALC)

Former Ameriprise Fund Manager Settles SEC Insider Trading Case

The Securities and Exchange Commission announced today that on December 8, 2014, the Honorable Andrew L. Carter, Jr. of the United States District Court for the Southern District of New York entered a final judgment against Reema D. Shah in SEC v. Reema D. Shah and Robert W. Kwok, 12-CV-4030, an insider trading case the SEC filed on May 21, 2012. The SEC alleged that Shah, a former mutual fund and hedge fund portfolio manager at RiverSource Investments, LLC, an investment adviser subsidiary of Ameriprise Financial, Inc., illegally tipped and traded on material, nonpublic information concerning Yahoo! Inc. and Moldflow Corporation.

The SEC's complaint alleged that in July 2009, Robert W. Kwok, a former Senior Director of Business Management at Yahoo, tipped Shah material, nonpublic information concerning an upcoming announcement of an internet search engine partnership agreement between Yahoo and Microsoft Corporation. The SEC alleged that, based on Kwok's tip, Shah caused certain of the funds she helped manage, including the Seligman Communications and Information Fund, to purchase approximately 700,000 shares of Yahoo. The shares were later sold resulting in profits of $388,807. The SEC also alleged that in April 2008, Shah tipped Kwok material, nonpublic information concerning an upcoming acquisition of Moldflow by Autodesk, Inc., which had been misappropriated by an Autodesk insider and tipped to Shah. The SEC alleged that, based on this tip, Kwok purchased 1,500 shares of Moldflow in a personal account, which he sold after announcement of the acquisition, realizing profits of approximately $4,750. The Court previously entered a final judgment, by consent, against Kwok.

The final judgment against Shah, entered by consent, orders her to pay disgorgement of $388,807 plus prejudgment interest of $1,296, and permanently enjoins her from any future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. No penalty was imposed in light of Shah's sentence in a parallel criminal case and her cooperation. In the parallel criminal action, Shah previously pled guilty to securities fraud and conspiracy to commit securities fraud and recently was sentenced to two years of probation, and ordered to forfeit $11,751 and pay a $500,000 criminal fine. United States v. Reema Shah, 12 CR 0404 (S.D.N.Y.). In related administrative proceedings, Shah previously consented to a Commission Order barring her from association with any investment adviser, broker, dealer, municipal securities dealer or transfer agent. In the Matter of Reema D. Shah, File No. 3-15084 (Oct. 31, 2012).

SEC ANNOUNCES FRAUD CHARGES AGAINST INVESTMENT ADVISORY FIRM AND CO-OWNERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

12/10/2014 01:30 PM EST

The Securities and Exchange Commission announced fraud charges against a Buffalo, N.Y.-based investment advisory firm and two co-owners accused of making false and misleading statements to clients when recommending investments in a risky hedge fund.  The hedge fund’s portfolio manager agreed to settle similar charges.

The SEC’s Enforcement Division alleges that Timothy S. Dembski and Walter F. Grenda Jr. steered their clients at Reliance Financial Advisors to invest in a hedge fund managed by Scott M. Stephan, whose experience in the securities industry was greatly exaggerated in offering materials they disseminated.  Dembski and Grenda allegedly knew that Stephan had virtually no hedge fund investing experience at all, and spent the majority of his career collecting on past-due car loans.  Nevertheless, highly speculative investments in the Prestige Wealth Management Fund were recommended to clients who were retired or nearing retirement and living on fixed incomes.  The trading strategy that was allegedly described to investors was fully automated by an algorithm purportedly sought by big banks.  The trading algorithm, however, did not work as intended and Stephan began placing trades manually, which led to the hedge fund’s eventual collapse.

“Investment advisers owe their clients a duty of complete candor when it comes to discussing investment options,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “In this case, Dembski and Grenda allegedly violated this fundamental duty by peddling a hedge fund investment that was more risky than depicted and misleading their clients about the portfolio manager’s experience.”

According to the order instituting a proceeding before an administrative law judge, Dembski’s clients invested approximately $4 million in Prestige Wealth Management Fund and Grenda’s clients invested approximately $8 million.  The hedge fund, which began trading in April 2011, did not generate the positive returns advertised, so Grenda withdrew his clients in October 2012.  The fund lost about 80 percent of its value when it collapsed a couple months later, leaving Dembski’s clients to lose the vast majority of their investments.

The SEC’s Enforcement Division further alleges that Grenda borrowed $175,000 from two clients in late 2009 and falsely told them that he would use it as a loan to grow his investment advisory business.  Grenda instead spent the money on personal expenses and debts.

The SEC’s Enforcement Division alleges that Dembski, Grenda, and Reliance Financial Advisors violated the antifraud provisions of the Investment Advisers Act of 1940, Securities Act of 1933, and Securities Exchange Act of 1934, and that Dembski and Grenda aided and abetted and caused violations of those same provisions by Reliance Financial and the general partner to the Prestige Wealth Management Fund.

In a separate order, Stephan agreed to settle findings that he violated the antifraud provisions of the Advisers Act, Securities Act, and Exchange Act, and aided and abetted and caused violations of those same provisions by the general partner to the Prestige Wealth Management Fund.  Without admitting or denying the allegations, Stephan agreed to be permanently barred from the securities industry.  Disgorgement and penalties will be determined at a later date.

The investigation by the SEC’s Enforcement Division was conducted by Tony Frouge, Alexander Janghorbani, Douglas Smith, and Steven G. Rawlings in the New York Regional Office, and the case was supervised by Sanjay Wadhwa.  The litigation will be led by Michael Birnbaum and Mr. Frouge.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Statement on Jury's Verdict in Trial of BankAtlantic Bancorp, Inc. and Alan Levan

Statement on Jury's Verdict in Trial of BankAtlantic Bancorp, Inc. and Alan Levan

SEC ANNOUNCES GUILTY PLEA TO CRIMINAL CHARGES IN INSIDER TRADING CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23150 / December 5, 2014

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

USA v. Robert H. Bray, Case No. 1:14-MJ-5119-JGD 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 Pleads Guilty to Criminal Charges

The Securities and Exchange Commission announced today that on December 4, 2014, J. Patrick O'Neill ("O'Neill") pled guilty to a criminal charge of conspiracy to commit securities fraud.

The Commission previously charged O'Neill and Robert H. Bray ("Bray") with insider trading in a civil action filed on August 18, 2014. The criminal charge is 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 Bank & Trust Company ("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.

O'Neill was initially charged by a criminal complaint and arrested in August 2014. On October 31, 2014, the United States Attorney's Office for the District of Massachusetts filed a criminal Information against O'Neill charging him with conspiracy to commit securities fraud. Bray was arrested by the Federal Bureau of Investigation on November 12, 2014 and charged by a criminal complaint with participating in the insider trading conspiracy.

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.