SEC Charges Private Equity Firm With Pay-to-Play Violations Involving Political Campaign Contributions

The Securities and Exchange Commission charged a Philadelphia-area private equity firm with violating “pay-to-play” rules by continuing to receive advisory fees from the city and state pension funds following campaign contributions made by an associate in 2011 to the governor of Pennsylvania and a candidate for mayor of Philadelphia.

In the SEC’s first case under pay-to-play rules for investment advisers, TL Ventures Inc. agreed to settle the charges by paying nearly $300,000.

More details are available in the SEC Press Release

Related articles

• How a zombie VC firm broke pay-to-play rules 
• SEC Official: Over Half Of All Private Equity Audits Revealed Crimes

Forced Annuitization Harms Elderly Investors

One of our advisory clients came to us with a new problem - the forced annuitization of a variable annuity. The problem - forced annuitization cancels the death benefit on the policy.

With some of these older policies being under water, annuitization creates a stream of payments that are less than the death benefit. For elderly clients who may not need the stream of payments this is obviously a huge problem,

The problem is that often buried within the fine print of variable annuity prospectuses, insurers detail the conditions under which they will distribute a client's annuity in the form of a stream of payments. When signing up for a contract, clients can choose an annuity commencement date — the date on which they will begin receiving income payouts — but insurers usually set an upper limit on the age by which clients must start receiving payouts. Typically, this ranges anywhere between the mid-80s to as late as 95 or 100, depending on the carrier and the terms of the contract.

For more information - The ticking time bomb of forced drawdowns on variable annuities

--- The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

SEC Charges Hedge Fund Advisory Firm and Others in South Florida-Based Scheme to Misuse Investor Proceeds

Charges have been filed by the SEC against a West Palm Beach based hedge fund advisory firm and its founder with fraudulently shifting money from one investment to another without informing investors.  According to the SEC, the firm’s founder and another individual later pocketed some of the transferred investor proceeds to enrich themselves.

The SEC alleges that Weston Capital Asset Management LLC and its founder and president Albert Hallac illegally drained more than $17 million from a hedge fund they managed and transferred the money to a consulting and investment firm known as Swartz IP Services Group Inc.  The transaction went against the hedge fund’s stated investment strategy and wasn’t disclosed to investors, who received account statements falsely portraying that their investment was performing as well or even better than before.  Weston Capital’s former general counsel Keith Wellner assisted the activities.

For more information - Securities Defense Lawyer Blog: 06/01/2014 - 07/01/2014

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--- The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Supreme Court Strikes Middle Ground in Securities Fraud Cases

The securities-fraud lawsuit isn’t dead, though a Supreme Court ruling handed down Monday has left it wounded. The high court gave companies more ability to knock down securities-fraud lawsuits brought by investors, but it declined to overturn the controversial legal doctrine that has underpinned investor class actions for more than two decades.

For more information visit Supreme Court Strikes Middle Ground on Securities Fraud Lawsuits - Law Blog - WSJ

 

What is a Corporate Monitor in a Securities Fraud Case

With high-profile Ponzi scheme cases such as Bernie Madoff and Scott Rothstein being front-page news for several years now, the public has grown accustomed to court-appointed fiduciaries, such as bankruptcy trustees and receivers. But there is another type of court-appointed fiduciary that is less known but equally effective these days—the corporate monitor.

So what is a corporate monitor? Sallah Astarita & Cox, LLC partner James Sallah, and his co-authors address the question in this article from the Daily Business Review. Mr. Sallah has been appointed by various courts as a receiver, as well as a corporate monitor.

The article explains that like a receiver and trustee, a corporate monitor is a lawyer, accountant or other disinterested professional appointed by the court as a neutral third party over something. However, unlike a receiver or trustee who typically has expansive powers (and thus potentially more costs), a corporate monitor traditionally performs a specific set of functions or has a single-purpose duty.

For more information - Board Of Contributors: Corporate Monitors Keep Status Quo During Crises | Daily Business Review

Merrill Lynch Fined $8 Million for Mutual Fund Overcharges

Merrill Lynch, Pierce, Fenner & Smith, Inc. was fined $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts by FINRA. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to affected customers, n addition to $64.8 million the firm has already repaid to harmed investors.

Mutual funds offer several classes of shares, each with different sales charges and fees. Typically, Class A shares have lower fees than Class B and C shares, but charge customers an initial sales charge. Many mutual funds waive their upfront sales charges for retirement accounts and some waive these charges for charities.

According to the press release, most of the mutual funds available on Merrill Lynch’s retail platform offered such waivers to retirement plan accounts and disclosed those waivers in their prospectuses. However, at various times since at least January 2006, Merrill Lynch did not waive the sales charges for affected customers when it offered Class A shares. As a result, approximately 41,000 small business retirement plans, and approximately 6,800 charities and 403(b) retirement plan accounts available to ministers and employees of public schools, either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Merrill Lynch learned in 2006 that its small business retirement plan customers were overpaying, but continued to sell them more costly shares and failed to report the issue to FINRA for more than five years.

For more information - FINRA Fines Merrill Lynch $8 Million; Over $89 Million Repaid to Retirement Accounts and Charities Overcharged for Mutual Funds

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide in litigation and FINRA arbitration proceedings. For more information call 212-509-6544 or send an email.

CEO Pay So High Because of Greed or Dodd-Frank.

While a top CEO's annual pay package may still be an unfathomable amount of money for most people, defenders of this recent increase in pay think anger toward it is misguided. They say that it is largely the result of a healthy stock market and also point to the fact that a large majority of shareholders, those who want to avoid losing money on poorly performing executives, approve of how much their companies' CEOs are making.

Interesting article, plus the claim that relative to other 1 percenters, CEO pay has not changed much in the last 20 years

For more information - The Reason CEO Pay Is So High Right Now Has Little To Do With Greed

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he attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Why Do Investors Keep Buying Actively Managed Funds?

An interesting question. With an overwhelming body of evidence showing that actively managed mutual funds underperform their appropriate risk-adjusted benchmarks, why do investors continue to invest in them..

Why Do Investors Keep Buying Actively Managed Funds? | BAM ALLIANCE

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The attorneys at Sallah Astarita & Cox include veteran securities attorneys with decades of experience. We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.

Secure that First Investor

Entreprenuer.com examines the concept that investors do not like to be alone. It's all about shared risk.

Calling it the "me, too" world of venture capital, where everyone appears to invest as part of a syndicate. Indeed, the typical first question out of a VC's mouth when talking to a startup about investing is, "Who's leading this?" The question points to a paradox about VCs in general. Everyone wants to tout that they're the best at sniffing out the next WhatsApp, but when it comes to putting money behind that startup, they want some other firm to have skin in the game first.

Nobody in the VC world likes to go it alone.

In the eyes of entrepreneurs, this makes VCs look like a scared bunch, but there is a rationale to this: It hedges risk. By syndicating an investment--even if the total amount invested is small enough for a firm to manage on its own--there is a bigger pool of funds available for future funding rounds or, alternatively, a reduction in losses should things go south. The more investors at the table, the more they can share the cost and time of conducting due diligence and hammering out term sheets.

Read the entire article at Secure That First Investor, and the Rest Will Come | Entrepreneur.com

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Oue clients at Sallah Astarita & Cox include  hedge funds, venture capitalists and individual investors. For  information regarding private investing, contact Mark Astarita at 212-509-6544 or email us.

SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities

The Securities and Exchange Commission charged the co-owner of two Bitcoin-related websites for publicly offering shares in the two ventures without registering them.

An SEC investigation found that Erik T. Voorhees published prospectuses on the Internet and actively solicited investors to buy shares in SatoshiDICE and FeedZeBirds. But he failed to register the offerings with the SEC as required under the federal securities laws. Investors paid for their shares using Bitcoin, a virtual currency that can be used to purchase real-world goods and services and exchanged for fiat currencies on certain online exchanges. The profits ultimately earned by Voorhees through the unregistered offerings totaled more than $15,000.

Voorhees agreed to settle the SEC's charges by paying full disgorgement of the $15,843.98 in profits plus a $35,000 penalty for a total of more than $50,000.

"All issuers selling securities to the public must comply with the registration provisions of the securities laws, including issuers who seek to raise funds using Bitcoin," said Andrew J. Ceresney, director of the SEC's Division of Enforcement. "We will continue to focus on enforcing our rules and regulations as they apply to digital currencies."

According to the SEC's order instituting a settled administrative proceeding, the first unregistered offering occurred in May 2012 as 2,600 bitcoins were raised through the sale of 30,000 shares in FeedZeBirds, which promises to pay bitcoins to Twitter users who forward its sponsored text messages. Then in two separate offerings from August 2012 to February 2013, SatoshiDICE sold 13 million shares and raised 50,600 bitcoins that were worth approximately $722,659 at the time. SatoshiDICE, which calls itself the biggest Bitcoin-betting game in the world and pays out casino-like winnings in bitcoins, ultimately returned these offering proceeds to investors in a buy-back transaction in July 2013. A significant rise in the exchange rate of U.S. dollars to bitcoins actually increased the amount paid back to investors to approximately $3.8 million for 45,500 bitcoins.

The SEC's order finds that Voorhees actively solicited investors to buy FeedZeBirds and SatoshiDICE shares on a website dedicated to Bitcoin known as the Bitcoin Forum. Voorhees also publicly promoted the unregistered offerings on other Bitcoin-related websites as well as Facebook. The first unregistered offering was explicitly referred to as the "FeedZeBirds IPO." Despite these general solicitations, no registration statement was filed for the FeedZeBirds or SatoshiDICE offerings, and no exemption from registration was applicable to these transactions.

The SEC's order finds that Voorhees violated Sections 5(a) and 5(c) of the Securities Act of 1933. Voorhees consented to cease and desist from committing or causing any future violations of the registration provisions without admitting or denying the SEC's findings. In addition to the monetary sanctions, Voorhees agreed that he will not participate in any issuance of any security in an unregistered transaction in exchange for any virtual currency including Bitcoin for a period of five years. The entry of the SEC's order disqualifies Voorhees from relying on Rule 506(b) and 506(c) of Regulation D under the Securities Act, as defined in the bad actor disqualification provisions of Rule 506.


More Information:

Investor Alert: Bitcoin and Other Virtual Currency-Related Investments

SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities

SEC Awards $875,000 to Two Whistleblowers Who Aided Agency Investigation

The SEC has awarded a whistleblower more than $875,000 to be split evenly between two individuals who provided tips and assistance to help the agency bring an enforcement action.

The SEC's whistleblower program authorized by the Dodd-Frank Act rewards high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million. Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case.

By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower's identity.

"These whistleblowers provided original information and assistance that enabled us to investigate and bring a successful enforcement action in a complex area of the securities market," said Sean McKessy, chief of the SEC's Office of the Whistleblower. "Whistleblowers who report their concerns to the SEC perform a great service to investors and help us combat fraud."

A total of eight whistleblowers have been awarded through the SEC's whistleblower program since it began in late 2011. For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

For more information -SEC Awards $875,000 to Two Whistleblowers Who Aided Agency Investigation

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Do you think you have sufficient information to be a whistleblower? Call 212-509-6544 or send us an email.

Dark Pool Operator Charged With Failing to Safeguard Confidential Trading Information

The SEC has charged a New York-based brokerage firm that operates a dark pool alternative trading system with improperly using subscribers' confidential trading information in marketing its services.

Regulations require an alternative trading system (ATS) to establish and enforce safeguards and procedures to protect the confidential trading information of its subscribers. Among them is limiting access to subscribers' data to employees who operate the ATS or have a direct compliance role.

An SEC investigation found that Liquidnet Inc. violated its regulatory obligations and its own promises to its ATS subscribers during a nearly three-year period when it improperly allowed a business unit outside the dark pool operation to access the confidential trading data. Employees in that unit used the confidential information about Liquidnet's dark pool subscribers during marketing presentations and various communications to other customers. Liquidnet also used subscribers' confidential trading information in two ATS sales tools that it devised.

SEC examiners spotted potential data access problems during an examination of Liquidnet and referred the matter to the Enforcement Division for further investigation. Liquidnet has agreed to settle the SEC's charges and pay a $2 million penalty.

For more information :SEC Charges New York-Based Dark Pool Operator With Failing to Safeguard Confidential Trading Information

Market Access Charges Against Wedbush Securities and Others

The SEC has filed charges Wedbush Securities Inc., which has consistently ranked as one of the five largest firms by trading volume on NASDAQ, allegng that it failed to maintain direct and exclusive control over settings in trading platforms used by its customers to send orders to the markets. Wedbush did not have the required pre-trade controls, failed to restrict trading access to people whom the firm preapproved and authorized, and did not conduct an adequate annual review of its market access risk management controls. The Enforcement Division alleges that the firm's violations of the market access rule were caused by Jthe former executive vice president in charge of Wedbush's market access business, and a senior vice president in the market access division, who were also charged.

According to the SEC's order instituting administrative proceedings, the violations began in July 2011 and continued into 2013. Wedbush allowed the majority of its market access customers to send orders directly to U.S. trading venues by using trading platforms over which Wedbush did not have direct and exclusive control. Bell was aware of the requirements of the market access rule and should have known that the firm's risk management controls and supervisory procedures related to market access did not comply with the market access rule. Fillhart also had responsibility for overseeing Wedbush's market access business and received inquiries by exchanges about potential violations by Wedbush and its customers. Despite these red flags, Fillhart did not take adequate steps to prompt the firm to adopt reasonably designed risk management controls.

According to the SEC's order, in addition to violating the market access rule (Securities Exchange Act Rule 15c3-5), Wedbush violated other regulatory requirements as a result of trading by its market access customers. These violations include Rule 203(b)(1) of Regulation SHO relating to short sales, Rule 611(c) of Regulation NMS related to intermarket sweep orders, Rule 17a-8 concerning anti-money laundering requirements, and Rule 17a-4(b)(4) concerning the preservation of records.

The proceeding before an administrative law judge will determine whether Wedbush willfully violated these provisions of the federal securities laws, and whether Bell and Fillhart were causes of the firm's violations of the market access rule. The judge also will decide what sanctions, if any, are appropriate.

For more information - SEC Announces Charges Against Wedbush Securities and Two Officials for Market Access Violations

Second Circuit Overrules Judge Rakoff in SEC-Citigroup Settlement

A federal appeals court on Wednesday overturned Judge Rakoff’s decision in 2011 to reject an S.E.C. settlement deal with Citigroup, undercutting the judge’s concerns that the bank got off with little more than a slap on the wrist. In a long-awaited opinion, a three-judge panel of the United States Court of Appeals for the Second Circuit concluded that Judge Rakoff “abused” his discretion “by applying an incorrect legal standard” to the case. The court sent the case back to Judge Rakoff, who is expected to eventually approve the deal. The panel’s decision, which hands a win not only to Wall Street, but also to its federal regulator, will most likely rein in Judge Rakoff’s criticisms of S.E.C. settlements. For the agency, which came under fire from Judge Rakoff and others for settling without demanding admissions of wrongdoing, it is a moment of validation.

For more information, Overruled, Judge Still Left a Mark on S.E.C. Agenda - NYTimes.com

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and insider trading trials. We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.

Top 10 List of Ponzi Schemes

Here is a list that you do not want to see include your investment - the Top 10 List of Crazy Ponzi Schemes. Unfortunately, toll many investors have found themselves in an investment that turned out to be a Ponzi Scheme.

Please, do yourself a favor. If someone offers you an investment with a 50% annual return, run. At the least, make sure to investigate the business completely. There are investments which generate significant above market rate returns - many hedge funds do so - but you need to be careful in making those investments. Ask questions and do your due diligence.

The functioning of a Ponzi scheme is inherently simple. Investors are promised above-average returns that generally carry little risk. However, the payment of these returns is made not from legitimate business activities, but rather from incoming funds from new investors. Little if any legitimate investing actually takes place, and the Ponzi scheme depends on the continuous flow of funds from new investors to meet obligations to existing investors. When the so-called “lifeblood” of a Ponzi scheme dries up and investor obligations cannot be met, the scheme unravels.

Making it more difficult to detect a Ponzi scheme is the fact that many do not start out as Ponzi schemes. Often a legitimate investment has a bad year, and the manager does not want to tell his investors. so he starts using new money to pay returns to old investors. Of course, that does not work for very long, and with each passing day it gets harder and harder to return everyone's money.

While tracing its origin back at least 80 years, the past decade has been unprecedented in terms of the number and severity of Ponzi schemes. Since 2008, at least 500 Ponzi schemes were uncovered worldwide, including Bernard “Bernie” Madoff’s legendary $17 billion scheme. All told, the financial impact of Ponzi schemes is pegged at more than $50 billion over the past six years.

InvestorPlace has recapped the data tracked by PonziTracker.com, and you can follow the link for the details. 10 of the World's Craziest Ponzi Schemes | InvestorPlace

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including representation of investors in Ponzi Schemes, and those accused of operating such schemes. One of our partners has also been appointed by the Courts as a receiver, conservator and monitor of business entities suspected of being Ponzi schemes or other wise fraudulently operated. Have a question? Give us a call at 212-509-6544 or send an email.

Yes, You Can Sue Your Firm and Win

While this is something of an unusual case, a California wealth adviser must pay two ex-employees almost $3.7 million for allegedly defaming them.,

A FINRA arbitration panel ruled in favor of Corey Casilio and William Leitch, who claimed that John Valentine, their former boss, made defamatory accusations against them after they left Valentine Capital Asset Management Inc, in Danville, California, in 2011 to start their own advisory firm.

The three arbitrators in the case, awarded Mr. Casilio and Mr. Leitch punitive damages of $2.5 million, in addition to compensatory damages of $800,000, according to the case’s award document. The arbitrators also ruled that Valentine must pay Mr. Casilio and Mr. Leitch’s attorneys’ fees, totalling almost $340,000.

The panel concluded that Mr. Valentine instigated customer claims against Casilio Leitch Investments in Walnut Creek, California, collaborated to plant accusations of fraud, created false evidence and coerced one of the firm’s clients to manipulate Google’s search results to show defamatory accusations with the purpose of deterring clients from doing business with the two advisers, according to the ruling posted on Finra’s website. Mr. Valentine alleged Messrs. Casilio and Leitch were both dismissed from his firm, while his former employees said they left voluntarily, according to the case file.

For more information, Two financial advisers awarded $3.7M from ex-boss by arbitration panel | Business Insurance

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including industry employment disputes. We are one of the few firms to defeat, in total, a six figure promissory note claim. For more information regarding securities employment disputes, contact Mark Astarita at 212-509-6544 or email us.

Oh My, Here Comes A Mistake.....

Phil Mickelson responds to insider trading allegations
Phil Mickelson responds to insider trading allegations
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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and insider trading trials. We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.

Banks Lowering Fees for Consumers

Recognizing that customers hate paying fees on their checking accounts, KeyBank has unveiled a new product that removes account activation and monthly fees and doesn't allow consumers to overdraft accounts.

The Hassle-Free Account was made available to customers late last month. It has no monthly fee, no balance requirements and free online banking, mobile banking and online bill-pay. Customers using this account have free access to the 1,300 KeyBank ATMs but can't write paper checks. "People want simple and clear banking with no surprises," says Dennis Devine, co-president of Key Community Bank. He says this account will allow customers to spend less time worrying about minimum balances or navigating the fee rules on checking accounts. In March, Bank of America rolled out a checking account that also eliminated the potential for overdraft fees for consumers. It hoped to appeal to customers who struggle to manage their account balances and were drawing often hefty overdraft fees.

For more information, KeyBank offers no overdraft account « Bankrate, Inc.

 

Piper Jaffray Hosts Consumer Conference

Piper Jaffray (PJC), a leading investment bank and asset management firm, is scheduled to host its 34th annual Consumer Conference, June 10-11, 2014 in New York. Industry participants and investors will hear from 70 of the industry’s highest profile retailers, footwear, apparel, accessories, home, beauty, restaurant, food processing and distribution, and leisure/entertainment companies.

The conference is expected to draw more than 800 attendees.

“This year’s conference will cover a broad range of themes including the ever increasing role of mobile and digital channels to better engage with consumers, innovation in restaurant and food concepts providing new avenues of growth, and the role of a global footprint to drive market share,” said Michael Cox, director of Piper Jaffray equity research. “We will also be introducing a layer of real-time consumer experiences through live food demonstrations for four of our presenting restaurant companies.”

Insights and perspectives will be gleaned through panel discussions, fireside chats and keynote speakers. Participants will meet senior executives and have the opportunity for one-on-one and group meetings.

For more information, Piper Jaffray to Host 34th Annual Consumer Conference - Yahoo Finance