Apr 9, 2018 | Shareholder & Investor Protection
Important Things to Know About Ponzi Schemes Which Target Seniors
The SEC’s Office of Investor Education and Advocacy and Retail Strategy Task Force issued a warning to senior investors, many of whom have spent many years saving and investing, about fraudulent Ponzi schemes. In a Ponzi scheme, fraudsters use money they collect from new investors to pay existing investors. And what appears to be a return on your investment is actually money from another investor who has been swindled.
Ponzi Scheme Warning Signs
Promises of High Returns with Little or No Risk.
Guaranteed, high-investment returns are the hallmark of a Ponzi scheme. Every investment has risk, and the potential for high returns usually comes with high risk. If it sounds too good to be true, it probably is.
Unlicensed and Unregistered Sellers.
Most Ponzi schemes involve individuals or firms that are not licensed or registered. Even if an investment professional comes across as likeable or trustworthy, research the individual here to determine whether he or she is licensed and registered.
Overly Consistent Returns & Aggressive Sales Ploys
Investment values tend to fluctuate over time. Be skeptical of an investment that generates steady positive returns regardless of market conditions.
Be wary of aggressive sales ploys, such as pressure to buy immediately and persuasion tactics such as offering investment seminars with a free meal. Take your time deciding whether an investment is right for you and don’t give any money until you have confirmed for yourself that the seller is licensed and registered.
For investments that you already have, be suspicious if you have problems getting paid or if you are pressured to rollover your investments. Ponzi scheme promoters sometimes try to prevent investors from cashing out by offering even higher returns for staying invested.
SEC Ponzi Scheme Enforcement Actions
The SEC has brought enforcement actions involving Ponzi schemes aimed at seniors, including:
In the Lifepay Group, LLC matter, two defendants conducted an alleged Ponzi scheme that targeted seniors and their retirement savings. The SEC alleged that the defendants offered investors unregistered promissory notes, telling them that their money would be used for real estate investments that would generate high returns. To keep the Lifepay scam going, the defendants, allegedly, used the money of new investors to pay earlier investors and convinced investors to rollover their investments into new promissory notes for larger amounts. According to the SEC’s complaint, the defendants only invested a small portion of investor money in real estate and stole roughly $1.3 million to pay for personal expenses.
In the Woodbridge matter, the defendants, allegedly, conducted a $1.2 billion Ponzi scheme in which thousands of people invested their retirement savings. The SEC alleged that the defendants employed hundreds of sales agents to advertise through television, radio, newspaper, cold calls, social media, websites, seminars, and in-person presentations. According to the SEC’s complaint, although the defendants claimed that investors would get paid revenue from high-interest loans to third parties, the defendants really used money from new investors to pay returns owed to existing investors. One defendant allegedly used $21 million of investor money for his own extravagant personal expenditures.
Source: Investor.gov
Apr 6, 2018 | Shareholder & Investor Protection
Three Investment Advisers Settle Charges for Breaching Fiduciary Duties and Generating Millions in Improper Fees
On April 6, 2018, the Securities and Exchange Commission announced that three investment advisers have settled charges for breaching fiduciary duties to clients and generating millions of dollars of improper fees in the process.
According to the SEC’s orders, PNC Investments LLC (“PNCI”), Securities America Advisors Inc. (“SAA”), and Geneos Wealth Management Inc. (“Geneos”) failed to disclose conflicts of interest and violated their duty to seek best execution by investing advisory clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available. The SEC also charged Geneos for failing to identify its revised mutual fund selection disclosures as a “material change” in its 2017 disclosure brochure. The firms, collectively, will pay almost $15 million, with more than $12 million going to harmed clients.
“These disclosure failures cause real harm to clients,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. O’Riordan further stated, “We strongly encourage eligible firms to participate in the recently announced Share Class Selection Disclosure Initiative as part of an effort to stop these violations and return money to harmed investors as quickly as possible.”
The Share Class Selection Disclosure Initiative gives eligible advisers until June 12, 2018 to self-report similar misconduct and take advantage of the SEC’s Enforcement Division’s willingness to recommend more favorable settlement terms, including no civil penalties against the adviser.
The SEC’s orders also found that PNCI and Geneos failed to disclose the conflict of interest associated with compensation they received from third parties for investing clients in particular mutual funds, and that PNCI improperly charged advisory fees to client accounts for periods when there was no assigned investment advisory representative.
The SEC’s orders find that PNCI, SAA, and Geneos each violated provisions of the Investment Advisers Act of 1940, including an antifraud provision. Without admitting or denying the findings, the advisers each consented to a cease-and-desist order and a censure.
The orders require PNCI to pay $6,407,770 in disgorgement and prejudgment interest along with a $900,000 penalty.
SAA must pay $5,053,448 in disgorgement and prejudgment interest along with a $775,000 penalty.
GENEOS must pay $1,558,121 in disgorgement and prejudgment interest along with a $250,000 penalty.
Source: SEC.gov
Apr 3, 2018 | Shareholder & Investor Protection
Fraudulent Initial Coin Offering Raised More than $32 Million From Thousands of Investors
Two co-founders of a purported financial services start-up were charged on April 2, 2018 by the Securities and Exchange Commission with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. According to the SEC’s announcement about the fraudulent ICO, criminal authorities separately charged and arrested both defendants.
Centra Tech., Inc. Co-Founders Masterminded a Fraudulent ICO
According to the SEC’s complaint Sohrab “Sam” Sharma (“Sharma”) and Robert Farkas (“Farkas”), co-founders of Centra Tech., Inc., allegedly, masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a “CTR Token.”
Sharma and Farkas, allegedly, claimed that funds raised in the ICO would help build a suite of financial products. They claimed, for example, to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender. In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard.
To promote the ICO, Sharma and Farkas, allegedly, created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media.
Defendants Charged with Violating Anti-Fraud and Registration Provisions of the Federal Securities Laws
The SEC’s complaint, filed in U.S. District Court, Southern District of New York, charges Sharma and Farkas with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Sharma and Farkas serving as public company officers or directors and from participating in any offering of digital or other securities. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Sharma and Farkas.
Sale of Unregistered Securities Issued in a “So-Called” Initial Coin Offering
According to the SEC’s complaint:
From approximately July 30, 2017 through October 5, 2017, Defendants raised at least $32 million from thousands of investors through the sale of unregistered securities issued by Centra . . ., an entity controlled primarily by Defendants. The Centra securities were issued in a so-called “initial coin offering” . . ., a term that is meant to describe the offer and sale of digital assets issued and distributed on a blockchain. Defendants sold the Centra Token (CTR) (“CTR Token” or “Centra Token”), an ERC20 token issued on the Ethereum blockchain, in Centra’s ICO. Defendants promoted the Centra ICO by touting nonexistent relationships between Centra and well-known financial institutions, including Visa, Mastercard and The Bancorp.
Defendants, individually and through Centra, engaged in an illegal unregistered securities offering and, in connection with the offering, engaged in fraudulent conduct and made material misstatements and omissions designed to deceive investors in connection with the offer and sale of securities in the Centra ICO. By doing so, Defendants violated and aided and abetted Centra’s violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”), and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder.
The Centra ICO was an illegal offering of securities for which no registration statement was filed with the Commission or was then in effect, and as to which no exemption from registration was available. The Centra ICO was a generalized solicitation made using statements posted on the internet and distributed throughout the world, including in the United States, and the securities were offered and sold to the general public, including to United States investors, in this district and elsewhere.
Source: SEC.gov
Apr 2, 2018 | Shareholder & Investor Protection
Mozido Inc. Founder Charged with Scheme to Trick Hundreds of Investors to Invest in His Shell Companies
On April 2, 2018, the Securities and Exchange Commission announced that it has charged Michael Liberty (“Liberty”), the founder of the fintech startup now known as Mozido Inc., with a scheme to trick hundreds of investors into investing in his shell companies instead of Mozido. Liberty and his accomplices then allegedly stole most of the more than tens of millions raised to fund a lavish lifestyle that included private jet flights, multimillion dollar residences, expensive cars, and movie production ventures.
The SEC’s complaint, filed March 30, 2018, alleges that Liberty; his wife, Brittany Liberty; his attorney, George Marcus; his cousin, Richard Liberty; and his cousin’s friend, Paul Hess, induced investors to purchase unregistered interests in shell companies controlled by Liberty that supposedly owned transferrable interests in Mozido. The shell companies, in reality, either did not own, or were not permitted to transfer, interests in the company.
The SEC also alleges that Liberty and his accomplices lied to investors about Mozido’s valuation and finances, the amount Liberty had personally invested in Mozido, and the use of their funds. According to the complaint, Liberty and his accomplices later orchestrated a series of transactions in which they used investors’ own money to heavily dilute their interests and duped investors into trading securities for those worth more than 90% less.
The SEC’s complaint, filed in U.S. District Court, District of Maine, charges the defendants with violating the antifraud and registration provisions of the federal securities laws.
According to the complaint:
Michael Liberty . . . and his accomplices engaged in a long-running fraudulent scheme using multiple fraudulent securities offerings. They tricked investors into believing that they were funding fast-growing startup companies. They were not. Liberty and his accomplices lied to those investors about the financial prospects of the startups, the use of their investment dollars, Liberty’s involvement with the startups, and the nature of the investments offered. Through these lies, Liberty and his accomplices enriched themselves at the expense of both the investors and the startup companies. Through their scheme, Liberty and his accomplices raised more than $55 million from hundreds of investors, misappropriating most of it to fund Liberty’s lifestyle, including chartered flights, a dairy cow farm, and the funding of a movie production.
Defendants’ fraudulent scheme centered on MDO, a financial technology company (then known as Mozido LLC), and later on Mozido, Inc., which bought all of MDO’s assets. Liberty claimed to be the founder of MDO and served as a de facto officer of MDO and Mozido, Inc. From 2010 to 2017, Liberty and his associates used shell companies (for example, a company Liberty named “Mozido Invesco”) to raise money from hundreds of investors, who purchased securities in the form of promissory notes issued by the shell companies without active business operations. Liberty and his associates represented that these notes provided a vehicle for investment in MDO.
(Emphasis added)
Source: SEC.gov
Apr 2, 2018 | Shareholder & Investor Protection
Pastor and Self-Described Financial Planner Charged in Scheme to Defraud Elderly Investors
On March 30, 2018, the Securities and Exchange Commission announced that it charged the pastor of one of the largest Protestant churches in the country and a self-described financial planner in a scheme to defraud elderly investors by selling them interests in defunct, pre-Revolutionary Chinese bonds.
The SEC’s complaint alleges that, in 2013 and 2014, Kirbyjon Caldwell (“Caldwell”), Senior Pastor at Windsor Village United Methodist Church in Houston, and Gregory Alan Smith (“Smith”), a self-described financial planner who the Financial Industry Regulatory Authority has barred from the broker-dealer business since 2010, targeted vulnerable and elderly investors with false assurances that the bonds—collectible memorabilia with no meaningful investment value—were worth millions of dollars. Caldwell and Smith raised at least $3.4 million from 29 mostly elderly investors, some of whom liquidated their annuities to invest in this scheme. Caldwell and Smith are alleged to have taken approximately $1.8 million of investor funds to pay for personal expenses, including mortgage payments in the case of Caldwell and luxury automobiles in the case of Smith. Offshore individuals received most of the remaining funds.
The SEC encourages investors to check the backgrounds of people selling investments by using the SEC’s Investor.gov website to quickly identify whether they are registered professionals and confirm their identity.
The SEC’s complaint alleges that Caldwell and Smith violated the registration and antifraud provisions of the federal securities laws, and seeks civil penalties, disgorgement, and other forms of relief.
In a separate complaint, the SEC charged attorney Shae Yatta Harper (“Harper”) of Monmouth Junction, New Jersey, with, among other things, aiding and abetting Caldwell’s and Smith’s antifraud violations. Harper agreed to settle the SEC’s action against her without admitting or denying the SEC’s allegations. Among other things, Harper agreed to pay a $60,000 civil penalty and to the issuance of an administrative order suspending her from appearing or practicing as an attorney before the SEC with the right to request reinstatement after five years.
Source: SEC.gov
Mar 29, 2018 | Shareholder & Investor Protection
Barclays Resolves Claims with DOJ for Fraud in the Sale of Residential Mortgage-Backed Securities
On March 29, 2018, the United States Department of Justice (“DOJ”) issued a press release which reported that the United States has reached an agreement with Barclays Capital, Inc. and several of its affiliates (“Barclays”) to settle a civil action filed in December 2016 in which the United States sought civil penalties for alleged conduct related to Barclays’ underwriting and issuance of residential mortgage-backed securities (“RMBS”) between 2005 and 2007. DOJ said Barclays will pay the United States $2,000,000,000 in civil penalties in exchange for dismissal of the Amended Complaint
Following a three-year investigation, the complaint in the action alleged that Barclays caused billions of dollars in losses to investors by engaging in a fraudulent scheme to sell 36 RMBS deals, and that Barclays misled investors about the quality of the mortgage loans backing those deals. The complaint alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, based on mail fraud, wire fraud, bank fraud, and other misconduct.
An agreement also has been reached with the two former Barclays executives who were named as defendants in the suit. One defendant is Paul K. Menefee (“Menefee”) who served as Barclays’ head banker on its subprime RMBS securitizations; the other defendant is John T. Carroll (“Carroll”) who served as Barclays’ head trader for subprime loan acquisitions. In exchange for dismissal of the claims against them, Menefee and Carroll agree to pay the United States the combined sum of $2,000,000 in civil penalties.
The scheme alleged in the complaint involved 36 RMBS deals in which over $31 billion worth of subprime and Alt-A mortgage loans were securitized, more than half of which defaulted. The complaint alleged that in publicly-filed offering documents and in direct communications with investors and rating agencies, Barclays systematically and intentionally misrepresented key characteristics of the loans it included in these RMBS deals. Generally, the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, and these loans defaulted at exceptionally high rates early in the life of the deals. Additionally, as alleged in the complaint, the mortgaged properties were systematically worth less than what Barclays represented to investors.
Source: Justice.gov
