Jun 19, 2018 | Shareholder & Investor Protection
On June 19, 2018, the SEC announced that it charged Merrill Lynch, Pierce, Fenner & Smith with misleading customers about how it handled their orders. Merrill Lynch, according to the SEC, agreed to settle the charges, admit wrongdoing, and pay a $42 million penalty.
According to the SEC’s order Merrill Lynch falsely informed customers that it had executed millions of orders internally when it actually had routed them for execution at other broker-dealers, including proprietary trading firms and wholesale market makers. Merrill Lynch called this practice “masking.” Masking entailed reprogramming Merrill Lynch’s systems to falsely report execution venues, altering records and reports, and providing misleading responses to customer inquiries. By masking the broker-dealers who had executed customers’ orders, Merrill Lynch made itself appear to be a more active trading center and reduced access fees it typically paid to exchanges.
After Merrill Lynch stopped masking in May 2013, it did not inform customers about its past practices, but instead took additional steps to hide its misconduct. Altogether, the SEC’s order found that Merrill Lynch falsely told customers that it executed more than 15 million “child” orders (portions of larger orders), comprising more than five billion shares, that actually were executed at third-party broker-dealers.
“By misleading customers about where their trades were executed, Merrill Lynch deprived them of the ability to make informed decisions regarding their orders and broker-dealer relationships,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.
“Institutional traders often make careful choices about how and where their orders are sent out of a concern for information leakage,” said Joseph Sansone, Chief of the Enforcement Division’s Market Abuse Unit. “Because of masking, customers who had instructed Merrill Lynch not to route their orders to third-party broker-dealers did not know that Merrill Lynch had disregarded their instructions.”
Source: SEC.gov
May 31, 2018 | Shareholder & Investor Protection
The SEC’s Office of Investor Education and Advocacy and Retail Strategy Task Force Warn Investors About Red Flags that a Broker May Be Running a Side Business Offering Investments Not Approved for Sale Through the Broker’s Firm
The SEC advises investors to always check the registration status and background of anyone recommending or selling an investment. Click here to research your investment professional.
Importantly, even if you are investing with a registered broker that you have known for years, make sure that your investments are approved for sale through the broker’s firm.
Ask your broker for an explanation and follow up with the firm’s compliance department if you encounter any of these potential red flags:
Your broker asks you to make out a check, or to wire money, to any person or to a different firm;
Your broker tries to sell you an investment without any paperwork about the investment;
Investments or deposits you made through your broker do not appear on your account statement from the firm; or
You receive an account statement that does not appear to be from the firm.
Investors: Use caution if your broker asks you to sign a letter that you consent to an investment that is not purchased through the firm. If you believe a broker is offering investments that may not be approved for sale through the firm, or to report other problems with a broker, submit a complaint to the firm and to the SEC or FINRA. Anytime you invest through a broker, confirm that the broker is registered and look out for signs that may indicate your investments are not being made through the broker’s firm.
SEC Charges Investment Professional in $8 Million Scam Targeting Long-Term Brokerage Customers
According to the SEC’s complaint, Steven Pagartanis (“Pagartanis”), who was affiliated with a registered broker-dealer, told some investors – including retirees who had been Pagartanis’s customers for many years – that he would invest their funds in either a publicly-traded or private land development company. He promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments. At Pagartanis’s direction, his investors wrote checks payable to a similarly-named entity that was secretly controlled by Pagartanis. In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers. To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies.
The Suffolk County District Attorney’s Office has filed criminal charges against Pagartanis. The SEC’s complaint, filed in United States District Court, Eastern District of New York, charges Pagartanis with violating the antifraud provisions of the federal securities laws. The SEC is seeking a judgment ordering Pagartanis to disgorge his allegedly ill-gotten gains plus prejudgment interest, and to pay financial penalties.
Marc P. Berger, Director of the SEC’s New York Regional Office, said, “Regardless of how long investors have worked with their brokers, they should always confirm that recommended investments are approved for sale by their brokerage firm before transferring funds.”
Investors: The SEC’s enforcement action is an important cautionary reminder to be aware that even if you are investing through a broker you have known for years, you should be cautious if your broker asks you to make out a check or to wire money to an individual or to a different firm.
Source: SEC.gov and Investor.gov.
May 2, 2018 | Shareholder & Investor Protection
SEC Launches “SEC Action Lookup for Individuals,” a/k/a “SALI,” An Online Tool For Investors to Identify Individuals Subject to Judgments or Orders in Enforcement Actions
Kehoe Law Firm, P.C. reports that on May 2, 2018, the Securities and Exchange Commission announced the launch of an online search feature which investors can use to research whether the person trying to sell them investments has a judgment or order entered against them in an enforcement action. The new tool, known as the SEC Action Lookup for Individuals, or SALI, is intended to assist the public in making informed investment decisions and avoiding financial fraud.
SALI will help identify registered and unregistered individuals who have been parties to past SEC enforcement actions and against whom federal courts have entered judgments or the SEC has issued orders. SEC Chairman Jay Clayton stated, “SALI provides Main Street investors with an additional tool they can use to protect themselves from being victims of fraud and other misconduct.”
SALI’s results are not limited to registered investment professionals, as with many existing online search functions. SALI allows the public to identify individuals who have settled, defaulted, or contested an enforcement action brought by the SEC, provided that a final judgment or order was entered against them in a federal court or an administrative proceeding.
According to the SEC, SALI supplements existing SEC-provided investor education resources available on Investor.gov, including a free investment professional search tool, that provides access to information on investment adviser representatives as well as individuals listed in FINRA’s BrokerCheck system.
SALI search results include parties from SEC actions filed between October 1, 2014 and March 31, 2018. Please note that the SEC will update the search feature periodically to add parties from newly-filed actions and actions filed prior to October 1, 2014.
More information about SEC federal court actions and administrative proceedings can be found by selecting the Enforcement tab on Sec.gov. Additonal investor-related resources can be found at information for the individual investor and Investor.gov.
Source: SEC.gov
May 1, 2018 | Shareholder & Investor Protection
On April 30, 2018, the SEC announced that Japan-based Panasonic Corp. will pay more than $143 million to resolve charges of Foreign Corrupt Practices Act (FCPA) and accounting fraud violations involving its global avionics business.
Panasonic Avionics Orchestrated Bribery Scheme
According to the SEC’s order, Panasonic’s U.S. subsidiary, Panasonic Avionics Corp. (PAC), a provider of in-flight entertainment and communication systems, offered a lucrative consulting position to a government official at a state-owned airline to induce the official to help PAC in obtaining and retaining business from the airline. At the time it orchestrated the bribery scheme, PAC was negotiating two agreements with the airline valued at more than $700 million. PAC ultimately retained the official and paid approximately $875,000 for a position that required little to no work, using an unrelated third-party vendor to conceal the payments.
Panasonic Fraudulently Overstated Pre-Tax and Net Income
The SEC’s order also found that Panasonic fraudulently overstated pre-tax and net income by prematurely recognizing more than $82 million in revenue for the fiscal quarter ending June 30, 2012. The fraud was accomplished by PAC backdating an agreement with the airline and providing misleading information to PAC’s auditor.
The SEC order further found that Panasonic lacked sufficient internal accounting controls and failed to make and keep accurate books and records in connection with purported consultants retained by PAC, as well as sales agents used to solicit business from state-owned airlines and other customers throughout the Middle East and Asia.
Panasonic consented to the SEC’s order finding that it violated the anti-bribery, anti-fraud, books and records, internal accounting controls, and reporting provisions of the Securities Exchange Act of 1934, and ordering it to pay approximately $143 million in disgorgement and pre-judgement interest. In a related matter, the U.S. Department of Justice today announced that PAC would pay a criminal penalty of more than $137 million as part of a deferred prosecution agreement related to causing books and records violations of the FCPA.
Source: SEC.gov
Apr 26, 2018 | Shareholder & Investor Protection
Wells Fargo Being Examined To Determine if the Bank Pushed 401(k) Retirement Plan Participants into More Expensive IRAs
On April 26, 2018, The Wall Street Journal reported that the U.S. Department of Labor
. . . is examining whether Wells Fargo & Co. has been pushing participants in low-cost corporate 401(k) plans to roll their holdings into more expensive individual retirement accounts at the bank, according to a person familiar with the inquiry.
Labor Department investigators also are interested in whether Wells Fargo’s retirement-plan services unit pressed account holders to buy in-house funds, generating more revenue to the bank, the person said.
Wells Fargo’s Handling of Client Retirement Savings at Issue
The Wall Street Journal reported:
At issue in the Labor Department’s investigation is how Wells Fargo handles its clients’ retirement savings. Under the Employee Retirement Income Security Act, entities that serve these accounts are supposed to put their clients’ interests ahead of their own.
Wells Fargo managers have pressed employees in the bank’s retirement division to recommend that clients open more expensive individual retirement accounts when they retire or leave their jobs, according to another person familiar with the bank’s operation.
The bank gives employees asset retention goals intended to keep these retirement accounts in-house, this person said, adding that Wells Fargo workers often generated higher fees for the bank by putting clients into mutual-fund shares that carried a front-end “load,” or fee.
Wells Fargo Reviewing Certain Activities to Determine If There Have Been Inappropriate Referrals or Recommendations
Wells Fargo, according to The Wall Street Journal:
. . . said its board is reviewing certain activities to assess “whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company’s investment and fiduciary services business”; the review is at a preliminary stage.
The Justice Department and the Securities and Exchange Commission also are examining the bank’s retirement plan practices alongside a broader sales practices probe, people familiar with the matter said.
A whistleblower has come forward to speak with regulators about Wells Fargo’s IRA rollover activities, according to the person familiar with the inquiry, alleging that the bank breached its fiduciary duties to clients.
(Emphasis added)
Review of Certain Wealth and Investment Management Activities in Response to Inquiries from Federal Government Agencies
CNBC.com reported that in Wells Fargo’s latest quarterly filing, the bank “. . . disclosed a review of certain activities in the wealth and investment management business in response to inquiries from federal government agencies. The review included whether the division had made inappropriate referrals and recommendations for 401(k) participants.”
Specifically, the Wells Fargo & Company filing, an Exhibit to the Company’s Form 10-K, filed March 1, 2018, stated:
Review of Certain Activities Within Wealth and Investment Management A review of certain activities within Wealth and Investment Management (WIM) being conducted by the Board, in response to inquiries from federal government agencies, is assessing whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the Company’s investment and fiduciary services business. The review is in its preliminary stages.
For additional information, please see CNN Money’s “US government urged Wells Fargo to probe its 401(k) tactics.”
Apr 9, 2018 | Shareholder & Investor Protection
$2.4 Million Ponzi Scheme and Related $1.4 Million Offering Fraud Targeting Retirees
On April 6, 2018, the Securities and Exchange Commission announced charges against two Texas companies and their principals in a $2.4 million Ponzi scheme and in a related, $1.4 million offering fraud targeting retirees.
The SEC’s complaint alleges that, from 2010 to 2017, Clifton E. Stanley (“Stanley”) ran a Ponzi scheme through his retirement planning and real estate investment business, The Lifepay Group, LLC. Stanley is alleged to have lured at least 30 elderly victims to invest approximately $2.4 million of their retirement savings with baseless promises and claims of outsized investment returns.
Stanley kept the scheme afloat for years by paying early investors with later investors’ funds and by convincing investors to roll over their investments. The SEC further alleges that Stanley pilfered from the estate of an elderly woman’s family trust, diverting nearly $100,000 to fund the Lifepay Ponzi scheme.
The SEC’s complaint also alleges that, beginning in 2015, Stanley and Michael E. Watts (“Watts”) orchestrated a second offering fraud through a company they controlled, SMDRE, LLC. Allegedly, Stanley and Watts used a collection of misrepresentations and empty promises to convince a group of predominantly elderly victims to invest roughly $1.4 million in SMDRE.
Stanley is alleged to have used roughly $1.3 million of the Lifepay offering proceeds for personal expenses, including country club memberships, daily living expenses, travel, and entertainment expenses. In addition, Watts and Stanley allegedly engaged in shell game transactions so they could use the vast majority of SMDRE investor funds for personal expenses and to keep the Lifepay Ponzi scheme afloat.
The SEC’s complaint charges Stanley, Watts, Lifepay, and SMDRE with violating the registration and antifraud provisions of the federal securities laws. Stanley also was charged for conduct stemming from his role as an unregistered broker.
For additional information, please review a recently issued investor alert from the SEC’s Office of Investor Education and Advocacy and the Division of Enforcement’s recently-formed Retail Strategy Task Force to help seniors spot the warning signs (“red flags”) of Ponzi schemes.
Source: SEC.gov
