Aug 24, 2018 | Shareholder & Investor Protection
The CFTC announced that a federal court entered final judgment ordering Patrick K. McDonnell (“McDonnell”) of Staten Island, New York, and CabbageTech, Corp., d/b/a Coin Drop Markets (“CDM”), McDonnell’s New York-based company, to pay over $1.1 million in civil monetary penalties and restitution in connection with a lawsuit brought by the Commodity Futures Trading Commission (“CFTC”) alleging fraud in connection with virtual currencies, including Bitcoin and Litecoin.
According to the CFTC, in an accompanying 139-page Memorandum (“District Court’s Decision”) entered on August 23, 2018, following a four-day bench trial, Judge Jack B. Weinstein of United States District Court, Eastern District of New York, found that McDonnell and CDM (the “Defendants”) engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time expert virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction. In fact, these misrepresentations were lies, and McDonnell simply misappropriated customer funds in what the Court found was the “vicious defrauding of customers.”
The District Court’s Decision found that from approximately January 2017 through approximately July 2017, McDonnell and CDM engaged in a deceptive and fraudulent scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction.
In fact, as found in the District Court’s Decision, the supposedly expert, real-time virtual currency advice was never provided, and customers who provided funds to McDonnell and CDM to purchase or trade on their behalf never saw those funds again. Essentially, McDonnell and CDM used their fraudulent solicitations to obtain and then keep customer funds—as the District Court’s Decision found, McDonnell “ruthlessly misled customers and misappropriated their funds.”
The District Court’s Decision further found that to conceal their fraudulent scheme, soon after obtaining customer funds, Defendants removed the website and social media materials from the Internet and ceased communicating with CDM Customers, who lost most if not all of their invested funds due to Defendants’ fraud and misappropriation. Neither Defendant has ever been registered with the CFTC in any capacity.
The decision stems from the Complaint filed in this action on January 18, 2018 (see CFTC Complaint and Press Release 7675-18). The District Court had previously entered a Preliminary Injunction Order in favor of the CFTC and against McDonnell and CabbageTech, Corp., finding that the CFTC had shown that Defendants would continue to violate the Commodity Exchange Act (“CEA”) without court intervention and that the CFTC’s antifraud authority unambiguously applies broadly to the use or attempted use of any manipulative or deceptive device in connection with a contract of sale of any commodity in interstate commerce, including the virtual currencies at issue in this matter (see CFTC Complaint and Press Release 7702-18).
In addition to requiring Defendants, jointly and severally, to pay $290,429.29 in restitution to customers and a $871,287.87 civil monetary penalty, the Final Judgment imposed permanent trading and registration bans on Defendants, and permanently enjoined them from further violations of the CEA and CFTC Regulations, as charged.
The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.
Source: CFTC.gov
Aug 21, 2018 | Shareholder & Investor Protection
On August 15, 2018, the Securities and Exchange Commission announced that Ameriprise Financial Services Inc., a wholly-owned subsidiary of Ameriprise Financial, Inc., will pay $4.5 million to settle charges that it failed to safeguard retail investor assets from theft by its representatives.
According to the SEC’s order, five Ameriprise representatives committed numerous fraudulent acts, including forging client documents, and stole more than $1 million in retail client funds over a four-year period. The SEC found that Ameriprise, a registered investment adviser and broker-dealer, failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives.
The five representatives were based in Minnesota, Ohio, and Virginia, and three previously pled guilty to criminal charges. Each of the representatives was terminated by Ameriprise for misappropriating client funds. The SEC’s order found that Ameriprise has implemented a new system to safeguard clients’ money and that Ameriprise reimbursed all impacted clients for the losses they incurred due to the misconduct of the five representatives.
The SEC’s order charged Ameriprise with failing to have reasonably designed policies and procedures to prevent its representatives from misappropriating client funds and failing to reasonably supervise the five representatives. Without admitting or denying the findings, Ameriprise agreed to be censured and pay a penalty of $4.5 million.
Source: SEC.gov
Aug 21, 2018 | Consumer Protection, Employment & Technology Archive
On August 21, 2018, the Securities and Exchange Commission announced that it settled charges with two former top officers of Endurance International Group Holdings Inc. for overstating the company’s subscriber base, and charged a former executive of Constant Contact Inc. for making similar misrepresentations.
The SEC’s orders find that Endurance’s former chief executive Hari Ravichandran and former chief financial officer Waruna Ellawala knowingly provided inflated subscriber figures for the Massachusetts-based online marketing company. The SEC also filed a complaint in United States District Court in Massachusetts alleging that former Constant Contact CFO Harpreet Grewal hid its slowing customer growth from investors and inflated its publicly reported subscriber numbers. Constant Contact became a subsidiary of Endurance after it was acquired by it in 2016.
The SEC filed a settled enforcement action in June against Endurance and Constant Contact in which Endurance agreed to pay an $8 million penalty. In the latest action, Ravichandran and Ellawala agreed to settle the charges without admitting or denying them and pay $1.38 million and $34,000 respectively in disgorgement, interest, and penalties. They also agreed to cease and desist from further violations of various antifraud, reporting, books and records, and internal controls provisions of the federal securities laws.
Source: SEC.gov
Aug 21, 2018 | Shareholder & Investor Protection
On August 20, 2018, the Securities and Exchange Commission announced that it charged the founder of San Francisco-based venture capital funds and his investment advisory firm with overcharging investors to fund personal projects, including sending millions of dollars to his own virtual reality production company.
The SEC’s complaint alleges that Michael B. Rothenberg, 34, marketed his advisory firm, Rothenberg Ventures LLC, as uniquely positioned to identify millennial entrepreneurs and invest in “frontier technology” companies. According to SEC filings, Rothenberg’s funds had nearly 200 investors and more than $64 million in assets.
The SEC’s complaint alleges that over a three-year period, Rothenberg and his firm misappropriated millions of dollars from the funds, including an estimated $7 million of excess fees, which Rothenberg used to support personal business ventures he claimed were self-funded and to pay for private parties and events at high-end resorts and Bay Area sporting arenas.
Without admitting or denying the allegations in the SEC’s complaint, Rothenberg and Rothenberg Ventures agreed to settle the charges. The settlement is subject to approval by the United States District Court, Northern District of California, which would determine the amount of disgorgement and civil money penalties. Rothenberg also agreed to be barred from the brokerage and investment advisory business with a right to reapply after five years. An SEC order imposing the bar will be instituted following court approval of the settlement.
Source: SEC.gov
Aug 20, 2018 | Shareholder & Investor Protection
On August 20, 2018, the Securities and Exchange Commission announced that it charged five individuals and four companies for unlawfully selling securities of Woodbridge Group of Companies LLC (“Woodbridge”) to retail investors. Woodbridge collapsed into bankruptcy in December 2017 and the SEC previously charged the company, its owner, and others with operating a massive $1.2 billion Ponzi scheme.
The Florida-based defendants named in the SEC’s complaints, Barry M. Kornfeld, Ferne Kornfeld, Lynette M. Robbins, Andrew G. Costa, Albert D. Klager, and their companies, were among Woodbridge’s top revenue producers, selling more than $243 million of its unregistered securities to more than 1,600 retail investors. The complaints allege that defendants reaped millions of dollars in commissions on their sales of Woodbridge securities, even though they were not registered as broker-dealers and were not permitted to sell securities. According to the SEC, Barry Kornfeld also violated a prior SEC order which barred him from acting as a broker.
According to the SEC’s complaints, the defendants touted Woodbridge as a “safe and secure” investment. Allegedly, the Kornfelds solicited investors at seminars and a “conservative retirement and income planning class” they taught at a Florida university. The SEC alleges that Klager pitched Woodbridge investments in newspaper ads, while Costa recommended them during a radio program he hosted, and Robbins used radio, television, and internet marketing.
Once Woodbridge filed for bankruptcy, investors stopped receiving monthly interest payments and have not received a return of their investment principal. Woodbridge has since agreed to settle the liability portion of the SEC’s charges without admitting or denying the allegations and reached a resolution with the SEC and creditors in a bankruptcy action regarding the ongoing control and management of Woodbridge. The SEC’s monetary claims against Woodbridge remain pending.
In its latest actions, the SEC filed charges seeking court-ordered injunctions, return of allegedly ill-gotten gains with interest, and financial penalties against the Kornfelds, Costa, Klager and their companies.
Robbins and her company, Knowles Systems Inc., agreed to settle the SEC’s charges in a separate action without admitting or denying the allegations and return more than $1 million of allegedly ill-gotten gains plus interest. Robbins also agreed to pay a $100,000 civil penalty and to an industry and penny-stock bar.
Source: SEC.gov
