SEC TAKES ACTION IN FAILURE TO DISCLOSE CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced enforcement actions against two leaders at a Las Vegas-based transfer agent firm who were responsible for disclosure failures in registration forms filed with the SEC.

Empire Stock Transfer Inc. and the two individuals agreed to settle the SEC’s charges.

Publicly traded companies typically use transfer agents to keep track of individuals and entities that own their stocks and bonds.  Transfer agents generally act as an intermediary for the company, issue and cancel certificates upon changes in ownership, and handle certificates that are lost, destroyed, or stolen.  Transfer agents must file registration forms with the SEC and include information about the individuals who control or finance the firm.  The forms must be amended whenever any information becomes inaccurate or incomplete.

An SEC examination and subsequent investigation found that Empire’s sole owner according to its registration forms – Patrick R. Mokros – failed to disclose that he relied on another individual to finance the purchase of the firm.  Also not disclosed in Empire’s forms is the fact that Mokros allowed his financier to play a significant role in the firm’s operations and receive a substantial portion of the profits.

The SEC also found that Empire’s registration forms failed to disclose the role of another leader at the firm – Matthew J. Blevins – who was hired in January 2007 to run Empire’s day-to-day operations and oversee the firm’s finances.  Empire didn’t update its registration forms to disclose the additional control person until last month as the SEC’s investigation was winding down.

“Transfer agents ensure the orderly transfer of securities, and it’s critical for such gatekeepers to accurately disclose who is financing and controlling their operations,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Empire’s filings told a different story than what was actually happening behind the scenes.”

The SEC’s order instituting settled administrative proceedings finds that Empire, Mokros, and Blevins committed or caused violations of Sections 17(a)(3) and 17A(c)(2) of the Securities Exchange Act of 1934, and Rules 17Ac2-1(a) and (c).  Empire and Mokros agreed to pay a $50,000 penalty and Blevins agreed to pay a $25,000 penalty to settle the SEC’s charges.  Without admitting or denying the SEC’s findings, Empire, Mokros and Blevins agreed to a censure and must cease and desist from committing or causing further violations.  Empire must retain an independent compliance consultant.

The SEC’s investigation was conducted by Ronnie Lasky, Kelly Bowers, and Diana Tani of the Los Angeles Regional Office.  The examination that led to the investigation was conducted by Cindy Wong, Erik Barker, and Ed Brady of the Los Angeles office.

HONOLULU RESIDENT CHARGED WITH USING SOCIAL MEDIA TO DEFRAUD INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced fraud charges against a Honolulu woman posing as an investment banker and soliciting investors through Twitter, Facebook, and other social media.

An SEC investigation found that Keiko Kawamura engaged in two separate fraudulent schemes to raise money from investors while casting herself as an investment and hedge fund expert when in fact she had virtually no prior trading experience.  In one scheme, she sought investors for her self-described hedge fund and posted on Twitter some screenshots of brokerage account statements suggesting she was personally obtaining incredible investment returns.  However, the account statements were not hers.  And instead of investing the money she raised from investors, she spent it on her own living expenses and luxury trips to Miami and London.  In a later scheme, Kawamura continued to boast phony experience to attract investors to her subscription service for investment advice.  She falsely told subscribers that she had been in the investment banking industry for nearly a decade and had achieved 800 percent returns in her personal brokerage account.

“As alleged in our case, Kawamura used social media to ensnare investors and raise money to support her lifestyle,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Investors should beware of fraudsters who use social media to hide behind anonymity and reach many investors with little to no cost or effort.”

The SEC’s order instituting administrative proceedings alleges that Kawamura willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 20(4)-8.  The administrative proceedings will determine any remedial action or financial penalties that are appropriate in the public interest against Kawamura.

The SEC’s investigation was conducted by Brent Smyth and Finola H. Manvelian of the Los Angeles Regional Office.  The SEC’s litigation will be led by Donald Searles.

Closing Remarks at the SEC's 24th Annual International Institute for Market Development

Closing Remarks at the SEC's 24th Annual International Institute for Market Development

FLORIDA MAN AND HIS COMPANIES ORDERED TO CEASE FICTITIOUS PRECIOUS METALS SALES

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Orders Florida Resident Derek J. Bridges and His Companies, Empire Sterling Metals Corp. and I.P.M. Investments, Inc., to Cease Illegal Fictitious Precious Metals Sales

Order includes restitution award and prohibitions against future activity

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Derek J. Bridges, a resident of Coral Springs, Florida, and his companies, Empire Sterling Metals Corp. (Empire) and I.P.M. Investments, Inc. (I.P.M.), for engaging in illegal, off-exchange precious metals transactions.

The CFTC Order requires Bridges and Empire jointly to pay restitution totaling $243,456.61 and Bridges and I.P.M. jointly to pay restitution totaling $14,854.41 to their customers. In addition, the Order imposes permanent registration and trading bans on Bridges, Empire, and I.P.M.

As explained in the Order, financed transactions in commodities with retail customers, like those engaged in by Empire and I.P.M., must be executed on or subject to the rules of an exchange approved by the CFTC. The CFTC Order finds that for two years beginning in July 2011, Empire, and subsequently I.P.M., solicited retail customers to engage in financed precious metals transactions, which were executed through Hunter Wise Commodities, LLC (Hunter Wise). Bridges directly solicited customers and supervised other telemarketers involved in solicitation. Bridges and the other telemarketers represented that a customer could purchase precious metals with just a deposit, such as 20 percent, and that the customer would receive a loan for the remaining 80 percent, according to the Order. In addition to interest on the “loan,” the customer also had to pay a commission and a mark-up on the total value of the metal. If the customer agreed to the transaction, the customer sent the deposit, commission, and mark-up to Empire or I.P.M., and the funds were ultimately transferred to Hunter Wise. In return, Hunter Wise paid Empire and I.P.M. a portion of the customer commissions and fees. Neither Empire, I.P.M., nor Hunter Wise bought, sold, loaned, stored, or transferred any physical metals for these transactions. Neither Empire, I.P.M., nor Hunter Wise actually delivered any precious metals to any customer. Notwithstanding the fact that no physical metal was involved, Empire’s and I.P.M.’s transactions were illegal because they were not executed on a registered exchange.

On December 5, 2012, the CFTC sued Hunter Wise in federal court in Florida charging it with engaging in the same type of illegal, off-exchange precious metals transactions engaged in by Empire and I.P.M. through Hunter Wise. In addition, the CFTC charged Hunter Wise with fraud and other violations (see CFTC Press Release 6447-12). On February 25, 2013, the Florida court granted a preliminary injunction against Hunter Wise, froze the firm’s assets, and appointed a corporate monitor to assume control over those assets (see CFTC Press Release 6522-13). On February 19, 2014, the court entered judgment against Hunter Wise for engaging in illegal precious metals transactions.

CFTC Division of Enforcement staff members responsible for this case are Daniel Jordan, Michael Loconte, and Rick Glaser.

The Future of Capital Formation

The Future of Capital Formation

CHARGES FILED IN ILLEGAL MANIPULATIVE TRADING CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged the owner of a Holmdel, N.J.-based brokerage firm with manipulative trading of publicly traded stocks through an illegal practice known as “layering” or “spoofing.” 

The SEC also charged the owner and others for registration violations.  Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case.

In layering, the trader places orders with no intention of having them executed but rather to trick others into buying or selling a stock at an artificial price driven by the orders that the trader later cancels.  An SEC investigation found that Joseph Dondero, a co-owner of Visionary Trading LLC, repeatedly used this strategy to induce other market participants to trade in a particular stock.  By placing and then canceling layers of orders, Dondero created fluctuations in the national best bid or offer of a stock, increased order book depth, and used the non-bona fide orders to send false signals to other market participants who misinterpreted the layering as true demand for the stock.

“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”

Joseph G. Sansone, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit, added, “Week after week, Dondero lined his pockets by placing phony orders and tricking others into trading with him at distorted prices.  The fact that Dondero perpetrated this deceit through the entry of trade orders did not allow him to evade detection.”

The SEC additionally charged Dondero, Visionary Trading, and three other owners with operating a brokerage firm that wasn’t registered as required under the federal securities laws.  New York-based brokerage firm Lightspeed Trading LLC is charged with aiding and abetting the registration violations, and its former chief operating officer is charged with failing to supervise one of the Visionary owners who shared with his co-owners commission payments that he received from Lightspeed while he was simultaneously working as a registered representative there.

According to the SEC’s order instituting settled administrative proceedings, the misconduct occurred from May 2008 to November 2011.  Visionary Trading and its four owners – Dondero, Eugene Giaquinto, Lee Heiss, and Jason Medvin – illegally received from Lightspeed a share of the commissions generated from trading by Visionary customers.  Lightspeed aided and abetted the violation by ignoring red flags that Visionary and its owners were receiving transaction-based compensation while Visionary and its owners were not registered as a broker or dealer or associated with a registered broker-dealer firm. 

According to the SEC’s order, Lightspeed also failed to establish reasonable policies and procedures designed to prevent and detect the improper sharing of commissions between its registered representatives such as Giaquinto, who was associated with Lightspeed for part of the relevant period, and others who were not registered with the SEC in any capacity.  Lightspeed’s former COO Andrew Actman failed reasonably to supervise Giaquinto by not taking appropriate steps to address red flags indicating that Giaquinto was sharing commission payments that he received from Lightspeed with the other Visionary owners. 

The SEC’s order finds that Dondero violated Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Visionary and its owners willfully violated Section 15(a)(1) of the  Exchange Act.  Giaquinto willfully aided and abetted and caused Visionary’s and his co-owners’ violations of Exchange Act Section 15(a)(1).  Lightspeed willfully aided and abetted and caused Visionary’s and its owners’ violations of Exchange Act Section 15(a)(1).  Lightspeed and Actman failed reasonably to supervise Giaquinto. 

In settling the SEC’s charges, Dondero agreed to pay disgorgement of $1,102,999.96 plus prejudgment interest of $46,792 and penalties of $785,000 for a total exceeding $1.9 million. He agreed to a bar from the securities industry.  Giaquinto, Heiss, and Medvin must each pay disgorgement of $118,601.96 plus prejudgment interest of $14,391.32 and a penalty of $35,000 for a combined total of more than $500,000 from the three of them.  They are barred from the securities industry for at least two years.  Lightspeed must pay disgorgement of $330,000 plus prejudgment interest of $43,316.54, post-order interest of $4,900.38, and a penalty of $100,000 for a total of approximately $478,000.  Actman agreed to a penalty of $10,000 and a supervisory bar for at least one year.

The SEC’s investigation was conducted by Jason Burt, a member of the Market Abuse Unit in Denver, and Thomas P. Smith, Jr. of the New York Regional Office.  It was supervised by Mr. Sansone, Mr. Wadhwa, and Daniel M. Hawke, chief of the Enforcement Division’s Market Abuse Unit.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.