TWO CRIMINALLY CHRGED IN SEC CASE INVLOVLING PROFESSIONAL ATHLETE LOANS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23286 / June 15, 2015
Securities and Exchange Commission v. Capital Financial Partners, LLC et al., Civil Action No. 15-cv-11447-IT (D. Mass.)
United States of America v. Will D. Allen and Susan C. Daub, Case No. 15-mj-7095-JCB (D. Mass.)
Defendants in SEC Case Involving Loans to Professional Athletes Are Criminally Charged

The Securities and Exchange Commission announced that, on June 12, 2015, the U.S. Attorney's Office in Massachusetts filed a criminal complaint against William D. Allen and Susan C. Daub charging them with securities fraud. The criminal charges are in connection with the same conduct on which the SEC filed a civil fraud case on April 1, 2015 alleging that Allen and Daub, through various corporate entities, operated a Ponzi scheme that raised more than $31 million from investors who were promised profits from loans to professional athletes. In the civil fraud case, the federal court in the District of Massachusetts granted the SEC's request for emergency relief against Allen, Daub, and various corporate entities registered to them, and issued an order freezing their assets and affording other injunctive relief.

The criminal complaint alleges that Allen and Daub solicited and collected money from investors for loans to athletes that were never issued on multiple occasions. On one occasion, according to the criminal complaint, one investor received forged loan documents from Daub in connection with a purported loan to an athlete that was never made. The criminal complaint also alleges that Allen and Daub collected money for oversubscribed loans. As one example, according to the criminal complaint, Daub collected approximately $2.5 million from several investors to fund a $500,000 loan to an athlete in March 2013. The criminal complaint alleges that investor funds collected on both occasions were used to make payments to other investors, to make payments to an entity registered to Allen, and to make transfers directly to Allen.

In the SEC's earlier, related enforcement action, the SEC named Allen, Daub, Florida-based Capital Financial Partners Enterprises LLC, and Boston-based Capital Financial Partners LLC and Capital Financial Holdings LLC, alleging that they violated federal anti-fraud laws and related SEC anti-fraud rules. Four other entities owned or controlled by Allen, Daub, or both were named in the complaint as relief defendants based on their receipt of investor funds - WJBA Investments LLC, Insurance Depot of America LLC, Simplified Health Solutions LLC, and Simplified Health Solutions 2 LLC. On April 28, 2015, the defendants assented to a preliminary injunction restraining them from violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The preliminary injunction also froze the assets of all defendants and relief defendants, restrained the defendants from accepting additional investor funds in furtherance of the alleged fraud, and restrained the defendants from destroying or concealing documents related to the alleged fraud.

Allen and Daub are scheduled to appear in federal court for a hearing in the criminal case on July 7, 2015.

SEC CHARGES MUTUAL FUND ADVISER'S BOARD MEMBERS WITH FAILING TO HAVE PROPER OVERSIGHT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/17/2015 12:55 PM EDT

The Securities and Exchange Commission charged a mutual fund adviser, its principal, and three mutual fund board members with failing to satisfy their statutory obligations in connection with the evaluation and approval of mutual fund advisory contracts.

Richmond, Va.-based advisory firm Commonwealth Capital Management was charged with violating Section 15(c) of the Investment Company Act of 1940 for providing incomplete or inaccurate information to two mutual fund boards, and the firm’s majority owner John Pasco III was charged with causing the violations.  They and former trustees J. Gordon McKinley III, Robert R. Burke, and Franklin A. Trice III have agreed to settle the SEC’s charges.

Commonwealth Capital Management acted as the investment adviser to various mutual funds within World Funds Trust (WFT) and World Funds Inc. (WFI).  Commonwealth Capital Management was part of a turnkey mutual fund platform that provided various services to small to mid-size mutual funds.  An SEC investigation found that as part of what’s known as the 15(c) process, the WFT board of trustees requested that Commonwealth Capital Management and Pasco provide certain information regarding advisory fees paid by comparable funds as well as the nature and quality of the firm’s services.  There was no documentary evidence that Commonwealth Capital Management provided or that the trustees evaluated fees paid by comparable funds.  Commonwealth Capital Management also provided incomplete responses about the nature and quality of services provided by Commonwealth Capital Management versus services provided by the funds’ sub-adviser and administrator, and the trustees did not request or receive additional materials.  Nevertheless, the trustees approved the advisory contracts without having all of the information they requested as reasonably necessary to evaluate the contracts.

“As the first line of defense in protecting mutual fund shareholders, board members must be vigilant,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “These trustees failed to fully discharge their fund governance responsibilities on behalf of fund shareholders.”

Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, added, “The advisory fee typically is the largest expense reducing investor returns.  The WFT trustees fell short as the shareholders’ watchdog by essentially rubber-stamping the adviser’s contract and related fee.”

According to the SEC’s order instituting a settled administrative proceeding, Commonwealth Capital Management also omitted or provided inaccurate information requested by independent directors in the WFI series of mutual funds in connection with board meetings to approve the firm’s advisory contract.  Commonwealth Capital Management supplied a fee chart containing inapt comparisons and erroneous information while omitting other details.  The firm additionally failed to provide certain information about profitability and an expense limitation agreement that had been in place to limit the relevant fund’s expenses.  Commonwealth Capital Management also informed the WFI independent directors that the fund had appropriate breakpoints when, in fact, breakpoints were omitted from the advisory contract.

The SEC’s order finds that Commonwealth Capital Management, McKinley, Burke, and Trice violated Section 15(c) of the Investment Company Act, and Pasco caused the firm’s violations.  The order finds that Commonwealth Capital Management’s affiliated administrator Commonwealth Shareholder Services was contractually responsible for preparing the shareholder reports on behalf of the WFI funds, and failed to include required information concerning the 15(c) process in one fund’s 2010 shareholder report in violation of Section 30(e) of the Investment Company Act and Rule 30e-1.  Without admitting or denying the findings, they each consented to the order and agreed to cease and desist from committing or causing any such violations.  Pasco and the firms agreed to jointly and severally pay a $50,000 penalty, and the trustees each agreed to pay $3,250 penalties.

The SEC’s investigation was conducted by Jacob Krawitz, Brian Privor, and John Farinacci, and the case was supervised by Anthony Kelly of the Asset Management Unit.  Christian Schultz assisted with the investigation.  The SEC examination that led to the investigation was conducted by Miguel A. Torres, Andrew B. Green, Cormac J. Logue, and Tamara D. Young, and managed by Margaret Jackson.

SEC CHARGES TEXAS-BASED OIL COMPANY AND CEO WITH DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/18/2015 03:00 PM EDT

The Securities and Exchange Commission today charged a Texas-based oil company and its CEO with defrauding investors about reserve estimates and drilling plans, and charged the author of a stock-picking newsletter for his role in a fraudulent promotional campaign encouraging readers to buy the oil company’s penny stock shares.

The SEC alleges that shortly after becoming Norstra Energy’s CEO in March 2013, Glen Landry began making false and misleading claims about business prospects on Norstra’s website as well as in press releases and SEC filings.  Landry and Norstra Energy misled investors about the location of the company’s property in order to make the wells appear more promising and twice disclosed an inaccurate date to begin drilling operations to make the potential for oil riches appear imminent.

The SEC’s complaint filed in federal court in Manhattan alleges that promotional materials issued by Eric Dany falsely proclaimed that “Norstra Energy could be sitting on top of as much as 8.5 billion barrels of oil!” and said the planned wells had a 99 percent chance of profitability.  After the exaggerated statements about its property and prospects caused Norstra Energy’s stock price to increase nearly 600 percent in a three-month period, the SEC suspended trading in June 2013.

“When microcap companies appear to be misleading the investing public, the SEC investigates those promoting the stock as well as the culpability of company officers,” said Michael Paley, Co-Chair of the SEC Enforcement Division’s Microcap Fraud Task Force.  “We allege that as a longtime geologist, Landry was well aware that Norstra Energy did not have the oil reserves or drilling plans being touted to investors.  And as a self-proclaimed expert in oil-and-gas stocks, Dany knew that claims made about the company were false but touted the stock anyway in a spam e-mail campaign and a hard-copy mailer he was paid to endorse.”

The SEC’s complaint charges Norstra Energy, Landry, and Dany with fraud and seeks final judgments ordering permanent injunctions, return of allegedly ill-gotten gains with interest, and financial penalties.  The SEC also seeks to bar Landry from serving as an officer or director of a public company or participating in a penny stock offering.

The SEC’s investigation has been conducted by Yitzchok Klug and Michael Paley of the Microcap Fraud Task Force along with Christopher Castano and Nancy Brown in the New York Regional Office.  The SEC’s litigation will be led by Ms. Brown, and the case is being supervised by Sanjay Wadhwa.

SEC ANNOUNCES CHARGES IN ALLEGED PONZI SCHEME TARGETING CHURCHGOERS

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/16/2015 12:55 PM EDT

The Securities and Exchange Commission announced charges against an Ohio-based self-directed IRA provider accused of ignoring red flags for accounts with investments that turned out to be fraudulent.

The SEC Enforcement Division alleges that Equity Trust Company took an active role in marketing investments offered by Ephren Taylor, who targeted churchgoers while running a Ponzi scheme, and Randy Poulson, who has been indicted in federal district court for an alleged offering fraud targeting investors in New Jersey.  The Enforcement Division alleges that Taylor and Poulson defrauded more than 100 investors out of $5 million invested through accounts at Equity Trust, and that Equity Trust was a cause of violations of Section 17(a) of the Securities Act of 1933 by Taylor and Poulson.  

“We allege that Equity Trust failed to protect the interests of its customers when it acted as more than a passive custodian,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “When custodians like Equity Trust are aware of red flags suggesting an ongoing fraud, they must take action to try to prevent it.”

In its order instituting proceedings, the Enforcement Division alleges among other things:

Equity Trust representatives participated at events hosted by Taylor and Poulson, and they encouraged attendees to transfer their retirement savings from traditional IRAs to self-directed IRAs at Equity Trust so they could invest in the Taylor or Poulson offerings.  Equity Trust also sponsored Poulson dinner events with prospective investors.

Equity Trust processed investments in notes offered by Taylor and Poulson in spite of serious red flags.  These included knowing that Taylor and Poulson had not provided them with documentation of the investments’ collateral as it required as custodian of the self-directed IRAs, and that Taylor made false statements to thousands of people at a church near Atlanta.

Equity Trust continued to charge fees to customers invested in Taylor’s notes as recently as this year despite the fraud charges announced against him in 2012.
The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC’s investigation was conducted by Andrew Dean and Lara Shalov Mehraban in the New York Regional Office and Luke Fitzgerald in the Asset Management Unit.  The case was supervised by Julie M. Riewe and Amelia A. Cottrell, and the SEC’s litigation will be led by Mr. Dean, Mr. Fitzgerald, and David Stoelting.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, the U.S. Attorney’s Office for the Northern District of Georgia, the Federal Bureau of Investigation, and the U.S. Secret Service.

SEC ANNOUNCES THAT A SWISS TRADER WILL PAY OVER $2.8 MILLION TO SETTLE INSIDER TRADING CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

06/15/2015 12:50 PM EDT

The Securities and Exchange Commission announced that a Swiss trader has agreed to pay more than $2.8 million to settle charges that he traded on nonpublic information ahead of a Florida-based biometrics company’s acquisition by Apple Inc.

A SEC investigation found that Helmut Anscheringer purchased stock and call options in AuthenTec Inc. upon learning from a longtime friend related to an AuthenTec executive that Apple proposed to buy the company, which provided fingerprint sensors and software for use in electronic devices.  The call options accounted for nearly all of the series volume on the days he purchased them.  Just days later, AuthenTec publicly announced that it had agreed to become a wholly-owned subsidiary of Apple for $355 million in cash.  The positive news led to the stock price closing approximately 60 percent higher than the previous day.  Through his unlawful trading, Anscheringer garnered more than $1.8 million in illicit profits.

“Anscheringer attempted to profit by freely trading on inside information,” said Glenn Gordon, Associate Director of the SEC’s Miami Regional Office.  “Foreign traders in U.S. stocks are not exempt from SEC scrutiny as we traced the misconduct back to Anscheringer when investigating these significant purchases in a trading account belonging to an entity in the British Virgin Islands for which he was listed as the beneficiary.”

The SEC’s order instituting a settled administrative proceeding finds that Anscheringer, who lives in Basel, Switzerland, violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Without admitting or denying the findings, Anscheringer agreed to pay disgorgement of $1,820,024, prejudgment interest of $121,732, and a penalty of $910,012 for a total of $2,851,768.  He must cease and desist from committing or causing any violations and any future violations of the antifraud provisions of the federal securities laws.

The SEC’s continuing investigation is being conducted by Sunny H. Kim and Kathleen E. Strandell in the Miami Regional Office with assistance from Mathew Wong of the Market Abuse Unit in the New York Regional Office.  The case is being supervised by Jason R. Berkowitz and the litigation is being led by Robert K. Levenson.  The SEC appreciates the assistance of the Swiss Financial Market Supervisory Authority, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

Mutual Funds - The Next 75 Years

Mutual Funds - The Next 75 Years