SEC Obtains Emergency Relief Against St. Louis-Based Private Investment Funds after Charging Them and Their Principal with Fraud

The SEC has obtained an emergency court order to freeze the assets of St. Louis-based private investment funds and management firms after suing them and their principal for a scheme to defraud investors. It is alleged that the principal diverted more than $9 million of investors’ money to himself without their knowledge or consent. He recorded the transfers as ‘loans” in his companies’ books. He raised $88 million from investors who were told their funds would be invested in emerging financial services and technology companies.

“Morriss attempted to hide his illegal transfers of investor funds by calling them ‘loans’ when in reality he had no intention of paying back the money and instead went on a spending spree,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “It is fraud, pure and simple.”

SEC Obtains Emergency Relief Against St. Louis-Based Private Investment Funds after Charging Them and Their Principal with Fraud

SEC Charges Florida Bank Holding Company and CEO with Misleading Investors about Loan Risks During Financial Crisis

The SEC charged a holding company for one of Florida’s largest banks and its top executive with misleading investors about growing problems in one of its significant loan portfolios early in the financial crisis. It is alleged that BankAtlantic Bancorp and it's CEO made misleading statements in public filings and earnings calls so as to hide the deteriorating state of a large portion of the bank’s commercial residential real estate land acquisition and development portfolio in 2007. BankAtlantic and the CEO then committed accounting fraud when they schemed to minimize BankAtlantic’s losses on their books by improperly recording loans.

“BankAtlantic and Levan used accounting gimmicks to conceal from investors the losses in a critical loan portfolio," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This is exactly the type of information that is important to investors, and corporate executives who fail to make that required disclosure will face severe consequences."

SEC Charges Florida Bank Holding Company and CEO with Misleading Investors about Loan Risks During Financial Crisis

FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees

FINRA has fined Merrill Lynch, Pierce, Fenner & Smith $1 million for failing to arbitrate disputes with employees relating to retention bonuses. Registered representatives who participated in the bonus program had to sign a promissory note that prevented them from arbitrating disagreements relating to the note, forcing the registered representatives to resolve disputes in New York state courts.

After merging with Bank of America in January 2009, Merrill Lynch implemented a bonus program to retain certain high-producing registered representatives and purposely structured it to circumvent the requirement to institute arbitration proceedings with employees when it sought to collect unpaid amounts from any of the registered representatives who later left the firm. FINRA rules require that disputes between firms and associated persons be arbitrated if they arise out of the business activities of the firm or associated person.

In January 2009, Merrill Lynch paid $2.8 billion in retention bonuses structured as loans to over 5,000 registered representatives. Merrill Lynch structured the program to make it appear that the funds for the program came from MLIFI, a non-registered affiliate, rather than from the firm itself, allowing it to pursue recovery of amounts due in the name of MLIFI in expedited hearings in New York state courts to circumvent Merrill Lynch's requirement to arbitrate disputes with its associated persons. Later that year, after a number of registered representatives left the firm without repaying the amounts due under the loan, Merrill Lynch filed over 90 actions in New York state court to collect amounts due under the promissory notes, thus violating a FINRA rule that requires firms to arbitrate disputes with employees.

FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees

FINRA Fines Citigroup Global Markets $725,000 for Failure to Disclose Conflicts of Interest in Research Reports

FINRA has fined Citigroup Global Markets, Inc. $725,000 for failing to disclose certain conflicts of interest in its research reports (published from January 2007 through March 2010) and research analysts' public appearances. Due to technical deficiencies, the database Citigroup used to identify and create disclosures was inaccurate or incomplete. In concluding this settlement, the firm neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

FINRA Fines Citigroup Global Markets $725,000 for Failure to Disclose Conflicts of Interest in Research Reports

Texas-Based Accountant Pleads Guilty to Lying to SEC Investigators

The SEC announced that a Texas-based former audit partner at accounting and consulting firm BDO USA LLP has pled guilty to criminal charges for lying to SEC enforcement staff during investigative testimony. Last year the SEC issued subpoenas to BDO and the accountant who was responsible for auditing several hedge funds managed by an investment adviser that the SEC is investigating. The criminal information states that the audit is a central issue in the SEC inquiry, and investigators took testimony from the accountant to obtain information about his role in the audit process and assess his credibility. He was the subject of a 2005 NASD (now FINRA) proceeding alleging that he took $49,350 in funds from a former employer for his personal use.

The criminal information alleges that during questioning in September 2011, the Texas-based accountant falsely testified to SEC staff that he was not aware of a $49,350 payment made on his behalf to his former employer. In fact, hewas aware that his attorney had repaid the $49,350 to the former employer as reimbursement of the funds he had allegedly taken for his personal use. The payment was made at the accountant’s direction and with his funds.

Texas-Based Accountant Pleads Guilty to Lying to SEC Investigators

SEC charges UBS With Overstating Prices

Yet another problem at UBS. What is going on over there? - SEC Charges UBS with Overstating Prices of Securities - some by 100%!

SEC charges UBS advisory arm with overstating prices of securities in three mutual funds - Securities Technology Monitor. - Financial Planning

Illinois-Based Adviser Charged by SEC in Social Media Scam

The SEC alleges that an Illinois-based investment adviser offered more than $500 billion in fake securities through social media websites.

“Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes,” said Robert B. Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.”

“More and more, investors are using social media to help them with investment decisions. While social media can provide many benefits for investors, it also makes an attractive target for fraudsters. The Investor Alert provides some useful tips to help investors look out for securities fraud online,” said Lori J. Schock, Director of the Office of Investor Education and Advocacy.

SEC Charges Illinois-Based Adviser in Social Media Scam

SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud

A Texas-based financial services firm, Life Partners Holdings Inc., and three of its senior executives have been charged by the SEC for their involvement in a fraudulent disclosure and accounting scheme involving life settlements. The firm failed to disclose risks, therefore misleading investors. Unknown to investors, the company was systematically and materially underestimating the life expectancy estimates, used to price transactions. These estimates have a large impact on the company’s revenues and profit margins as well as the company’s ability to generate profits for its shareholders. It is also alleged that they also utilized improper accounting to increase the companies value.

SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud

SEC Charges Magyar Telekom and Former Executives with Bribing Officials in Macedonia and Montenegro

The SEC charged the largest telecommunications provider in Hungary and three of its former top executives with bribing government and political party officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry. The SEC alleges that three senior executives at Magyar Telekom Plc. orchestrated, approved, and executed a plan to bribe Macedonian officials in 2005 and 2006 to prevent the introduction of a new competitor and gain other regulatory benefits. Magyar Telekom's subsidiaries in Macedonia made illegal payments of approximately $6 million under the guise of bogus consulting and marketing contracts. The same executives orchestrated a second scheme in 2005 in Montenegro related to Magyar Telekom's acquisition of the state-owned telecommunications company there. Magyar Telekom paid approximately $9 million through four sham contracts to funnel money to government officials in Montenegro.

SEC Charges Magyar Telekom and Former Executives with Bribing Officials in Macedonia and Montenegro

FINRA Fines Credit Suisse Securities $1.75 Million for Regulation SHO Violations and Supervisory Failures

FINRA has fined Credit Suisse Securities (USA) LLC $1.75 million for violating Regulation SHO and failing to properly supervise short sales of securities and marking of sale orders. As a result of these violations, Credit Suisse entered millions of short sale orders without reasonable grounds to believe that the securities could be borrowed and delivered and mismarked thousands of sales orders. Reg SHO requires a broker or dealer to have reasonable grounds to believe that the security could be borrowed and available for delivery before accepting or effecting a short sale order. Requiring firms to obtain and document this "locate" information before the short sale is entered reduces the number of potential failures to deliver in equity securities. In addition, Reg SHO requires a broker or dealer to mark sales of equity securities as long or short.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "Credit Suisse's Reg SHO supervisory and compliance monitoring system was seriously flawed. Millions of short sale orders were being entered in its systems without locates for over four years because the firm did not have adequate Reg SHO technology and procedures in place."

FINRA Fines Credit Suisse Securities $1.75 Million for Regulation SHO Violations and Supervisory Failures