Sep 7, 2018 | Shareholder & Investor Protection
On September 5, 2018, the Securities and Exchange Commission announced that it charged a Texas-based investment fund and its founder with defrauding investors with false promises of massive returns in cannabis-related businesses. The SEC also issued an alert to warn retail investors about marijuana-related securities offerings.
The SEC’s complaint alleged that Greenview Investment Partners L.P. and its founder Michael E. Cone (“Cone”) used misleading marketing materials in raising more than $3.3 million from investors. Allegedly, Cone employed boiler room sales staff who made cold calls to investors and promised them up to 24 percent annual returns from investments in Greenview. According to the SEC’s complaint, Cone used an alias to conceal his prior criminal convictions, lied about having a former agent from the U.S. Drug Enforcement Administration on staff, as well as falsely claimed to have a long record of profitably investing millions in cannabis-related businesses.
The SEC’s complaint alleged that, in reality, Greenview had no track record and its sole investment of $400,000 was in a cannabis company that had yet to harvest a crop. According to the SEC’s complaint, Cone spent investors’ money on designer clothes and luxury cars, and on payments to earlier investors to prolong the alleged scheme. In a parallel criminal proceeding, the U.S. Attorney’s Office for the Central District of California charged Cone and seized approximately $1.4 million in cash and assets.
The SEC’s complaint, filed in United States District Court for the Northern District of Texas, charged Greenview and Cone with securities fraud and violations of the registration provisions of the federal securities laws. Cone agreed to an officer-and-director bar and a permanent injunction. The court will eventually determine disgorgement and prejudgment interest.
As part of their ongoing collaboration to protect retail investors, the SEC’s Office of Investor Education and Advocacy and Retail Strategy Task Force issued the aforementioned Investor Alert about marijuana-related investments, urging investors to consider the risks of investment fraud and market manipulation before investing in a marijuana-related company.
Source: SEC.gov
Sep 4, 2018 | Shareholder & Investor Protection
On September 4, 2018, the Securities and Exchange Commission announced that Paris-based pharmaceutical company Sanofi has agreed to pay more than $25 million to resolve charges that its Kazakhstan and the Middle East subsidiaries made corrupt payments to win business.
According to the SEC’s order, the schemes spanned multiple countries and involved bribe payments to government procurement officials and healthcare providers in order to be awarded tenders and to increase prescriptions of its products. In Kazakhstan, distributors were used as part of a kickback scheme to generate funds from which bribes were paid to officials to ensure that Sanofi was awarded tenders at public institutions. The kickbacks were tracked in internal spreadsheets where they were coded as “marzipans.” In the Middle East, various pay-to-prescribe schemes were used to induce healthcare providers to increase their prescriptions of Sanofi products.
Charles Cain, FCPA Unit Chief, SEC Enforcement Division, stated, “Bribery in connection with pharmaceutical sales remains as a significant problem despite numerous prior enforcement actions involving the industry and life sciences more generally.” Further, Mr. Cain stated, “While bribery risk can impact any industry, this matter illustrates that more work needs to be done to address the particular risks posed in the pharmaceutical industry.”
The SEC’s order finds that Sanofi violated the books and records and internal accounting controls provisions of the federal securities laws. Without admitting or denying the findings, Sanofi agreed to a cease-and-desist order and to pay $17.5 million in disgorgement, $2.7 million in prejudgment interest, and a civil penalty of $5 million.
Source: SEC.gov
Aug 28, 2018 | Shareholder & Investor Protection
On August 28, 2017, the Securities and Exchange Commission announced that Moody’s Investors Service Inc. has agreed to pay a total of $16.25 million in penalties to settle charges involving internal control failures and failing to clearly define and consistently apply credit rating symbols. According to the SEC, this marks the first time the SEC has filed an enforcement action involving rating symbol deficiencies.
Moody’s agreed to pay $15 million to settle charges of internal controls failures involving models it used in rating U.S. residential mortgage-backed securities (“RMBS”) and will retain an independent consultant to assess and improve its internal controls. Moody’s separately agreed to pay $1.25 million and to review its policies, procedures, and internal controls regarding rating symbols. Moody’s did not admit or deny the SEC’s charges.
According to the SEC’s order in the internal controls proceeding, Moody’s failed to establish and document an effective internal control structure as to models that Moody’s had outsourced from a corporate affiliate and used in rating RMBS from 2010 through 2013. Moreover, Moody’s failed to maintain and enforce existing internal controls that should have been applied to the models. Ultimately, Moody’s corrected more than 650 RMBS ratings with a notional value exceeding $49 billion, due, in part, to errors in the models. Also, in 54 instances, Moody’s failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings.
In the SEC’s order relating to ratings symbols, for 26 ratings of securities known as “combo notes” with a total notional value of about $2 billion, Moody’s assigned ratings to combo notes in a manner that was inconsistent with other types of securities that used the same rating symbols.
Source: SEC.gov
Aug 27, 2018 | Shareholder & Investor Protection
On August 27, 2018, the Securities and Exchange Commission announced charges against four Transamerica entities for misconduct involving faulty investment models and ordered the entities to refund $97 million to misled retail investors.
According to the SEC’s order investors put billions of dollars into mutual funds and strategies using the faulty models developed by investment adviser AEGON USA Investment Management LLC (AUIM). AUIM, its affiliated investment advisers Transamerica Asset Management Inc. (TAM) and Transamerica Financial Advisors Inc., and its affiliated broker-dealer Transamerica Capital Inc., claimed that investment decisions would be based on AUIM’s quantitative models. The SEC’s order finds that the models, which were developed solely by an inexperienced, junior AUIM analyst, contained numerous errors, and did not work as promised. The SEC found that when AUIM and TAM learned about the errors, they stopped using the models without telling investors or disclosing the errors.
Without admitting or denying the SEC’s findings, the four Transamerica entities agreed to settle the SEC’s charges and pay nearly $53.3 million in disgorgement, $8 million in interest, and a $36.3 million penalty, and will create and administer a fair fund to distribute the entire $97.6 million to affected investors.
In separate orders, the SEC also found that AUIM’s former Global Chief Investment Officer, Bradley Beman, and AUIM’s former Director of New Initiatives, Kevin Giles, each were a cause of certain of AUIM’s violations. In particular, the Commission found that Beman did not take reasonable steps to make sure the mutual funds’ models worked as intended and that Beman and Giles both contributed to AUIM’s compliance failings related to the development and use of models. Beman and Giles agreed to settle the SEC’s charges without admitting or denying the findings and pay, respectively, $65,000 and $25,000 in penalties that also will be distributed to affected investors.
Source: SEC.gov
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
