SEC CHARGED ATTORNEY WITH CONDUCTING A PONZI SCHEME WORTH ABOUT $5 MILLION

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission  charged a Manhattan-based attorney with conducting a Ponzi scheme that defrauded some of his legal clients as well as close family members and friends.

The SEC alleges that Charles A. Bennett raised approximately $5 million by selling purported investments in what he described as a pool of funds that invested in joint ventures with a Wyoming-based investment fund to which he claimed to have a close connection.  Bennett told investors their money would largely be used to fund investments in European real estate mortgage-backed securities yielding lucrative rates of return ranging anywhere from 6 to 25 percent over short periods of time.  He stated that prominent individuals including a former governor of New York were participating in these investment ventures.
However, the SEC alleges that Bennett’s story was a sham.  While the fund does exist and Bennett is an acquaintance of the fund’s principal, he had no connection to the fund nor did he invest in any joint ventures associated with the fund or prominent individuals.  In fact, he made no investments at all, instead secretly misappropriating all of the money he raised from investors.  Bennett used funds from newer investors to pay redemptions and make phony “interest” payments to earlier investors, and he siphoned away investor money to support his own lifestyle that included vacations, expensive hotels, and substantial cash withdrawals.

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

“Bennett falsely portrayed that he was closely associated with a Wyoming-based fund and would provide substantial rates of return to investors, but he was simply keeping the cash for himself and using it to perpetuate his Ponzi scheme,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in federal court in Manhattan, Bennett sent phony documents to investors in order to make the investments appear legitimate.  He falsely claimed them to be account statements issued by the Wyoming-based fund.  By mid-2014, Bennett’s scheme began to collapse as investors’ demands for the return of their principal outpaced his ability to obtain new funds.  Last month, Bennett composed a lengthy handwritten note admitting to his fraudulent conduct and left it in a Manhattan hotel room.  He then jumped into the Hudson River and was later rescued.

The SEC’s complaint charges Bennett with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and with selling securities for which no registration statement is active or on file with the SEC.  The complaint seeks among other things permanent injunctive relief, disgorgement of ill-gotten gains, and financial penalties.  

The SEC’s investigation, which is continuing, is being conducted by Jorge G. Tenreiro and Lara S. Mehraban of the New York Regional Office.  The case is being supervised by Amelia A. Cottrell, and Richard G. Primoff and Mr. Tenreiro are leading the SEC’s litigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

SEC FILES FRAUD CHARGES AGAINST INVESTMENT ADVISER TO PRO ATHLETES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23155 / December 11, 2014

Securities and Exchange Commission v. Bill C. (Billy) Crafton, Civil Action No. 3:14-cv-02916-DMS-JLB

Yesterday the Securities and Exchange Commission filed fraud charges against a former investment advisor who provided services primarily to professional athletes, alleging that he failed to disclose compensation and kickbacks he received for steering clients to certain investments and financial products. The SEC further alleges that he misappropriated substantial sums from two clients for the benefit of a third.

According to the SEC's complaint filed in the U.S. District Court for the Southern District of California, San Diego resident Bill C. (Billy) Crafton was the sole owner of Martin Kelly Capital Management, through which he provided investment advice and wealth administration services to current and former professional athletes in Major League Baseball, the National Football League, the National Hockey League, and the National Basketball Association. From at least 2006 to 2010, Crafton received more than $1.5 million in undisclosed compensation and brokerage commissions from the principals of certain funds and businesses in exchange for recommending that his clients invest in those enterprises or do business with them. In some instances, Crafton falsely disavowed to his clients that he was receiving such compensation in connection with client transactions.

The SEC further alleges that Crafton knowingly orchestrated a fraudulent scheme in June 2010 when he arranged through forged wire transfer authorizations and other means for two of his clients to purchase a third client's $700,000 position in a fund. Crafton was well aware that the fund had been the subject of an asset freeze obtained by the SEC four days earlier for allegedly operating as a Ponzi-like scheme.

The SEC's complaint alleges that Crafton violated Section 17(a) of the Securities Act of 1933; Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5; and Sections 206(1), 206(2), and 206(3) of the Investment Advisers Act of 1940.

Crafton has agreed to a settlement that is subject to court approval. In settlement papers that Crafton signed in April 2014 which were filed with the court simultaneously with the complaint, Crafton consented to the entry of a final judgment permanently enjoining him against future violations of the Section 17(a) of the Securities Act of 1933; Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5; and Sections 206(1), 206(2), and 206(3) of the Investment Advisers Act of 1940. The final judgment to which Crafton consented would order that he is liable for $1,505,952 in disgorgement plus prejudgment interest of $192,959, for a total of $1,698,911 that he is anticipated to pay as part of his obligations in a parallel criminal case by the U.S. Attorney's Office for the Southern District of California in which he pled guilty to charges of conspiracy to commit wire fraud on October 17, 2014.

Additionally, Crafton consented to the future entry of a Commission order that would bar him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and also bar him from participating in any penny stock offering.

The SEC’s investigation, which is continuing, is being led by Alfred C. Tierney and John P. Lucas and supervised by J. Lee Buck, II. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation.

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.