Tuesday, June 02, 2015

SEC Charges Investment Adviser With Defrauding Retired Teachers

The Securities and Exchange Commission today charged an investment adviser in Miami with siphoning money from his investment fund and defrauding investors, including several local teachers and law enforcement officers.

The SEC alleges that Phil Donnahue Williamson conducted a Ponzi scheme with money he raised for the Sterling Investment Fund, which purportedly invested in mortgages and properties in Florida and Georgia.  Many of Williamson’s investors were public sector retirees such as teachers and law enforcement officers who sought safe investments for their retirement savings.  Williamson assured investors there was no risk involved and they would receive annual returns of 8 to 12 percent.  But rather than invest their money as promised, he used the majority of fund assets to pay his personal expenses and make supposed returns to investors.  Williamson created fictitious valuations that were sent to investors.

“We allege that Williamson lured retired teachers, law enforcement officers, and others into believing that the Sterling Investment Fund was a safe investment generating significant returns,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Investors entrusted him with their retirement savings, and he spent it as his own money.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, one retired Miami-Dade County school teacher and church pastor invested $125,000 in the fund.  That same day, Williamson transferred himself $10,000 to pay his credit card bill and make a car payment to BMW among other personal expenditures.  Williamson later paid $24,400 to other investors in the fund as purported distributions, and transferred himself another $24,000 to pay additional personal expenses.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Williamson.

Williamson has agreed to settle the SEC’s charges and is liable for $748,050.01 in disgorgement.  He also agreed to be permanently prevented from violating the antifraud provisions of the Investment Advisers Act of 1940, including misleading clients or prospective clients about investment strategies, the use of client funds, or his qualifications to advise clients.  The settlement is subject to court approval.

SEC Charges Two Stock Promoters With Conducting Market Manipulation Schemes

The Securities and Exchange Commission today charged a pair of penny stock promoters in Canada with manipulating two microcap stocks to create the false appearance of market interest.

The SEC alleges that Mike Taxon and Itamar Cohen distributed promotional mailings of glossy "newsletters" with fake publication names like "Stock Trend Report" and "Global Investor Watch" in order to tout the stocks of purported gold and silver exploration company Raven Gold Corporation (RVNG) and natural gas production company Kentucky USA Energy (KYUS).  The newsletters misled investors with purportedly positive – but fake – price and volume trends for these stocks and other false information about the promoters' identity, compensation, and control of the stock. In reality, most of the touted market activity was generated by Taxon, Cohen, and their associates who controlled large blocks of the companies' stocks.  Earlier this week, the SEC charged attorney Adam Gottbetter for his role in the scheme involving Kentucky USA Energy stock.

In a parallel action, the U.S. Attorney's Office for the District of New Jersey today announced criminal charges against Taxon and Cohen.

"Taxon and Cohen lured investors to these stocks by depicting the illusion of an active market and positive market trends," said Andrew M. Calamari, Director of the SEC's New York Regional Office.
The SEC's complaint filed in federal court in New Jersey alleges that Taxon and Cohen violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

Taxon and Cohen agreed to partial settlements of the SEC's charges, with monetary sanctions to be determined by the court at a later date.  They consented to the entry of a judgment enjoining them from future violations and barring them from participating in penny stock offerings.  The partial settlements are subject to court approval.


Monday, June 01, 2015

Investor Bulletin and Consumer Advisory: Planning for Diminished Capacity and Illness

The SEC’s Office of Investor Education and Advocacy and the CFPB’s Office for Older Americans are issuing this bulletin to help investors and consumers understand the potential impact of diminished capacity on their ability to make financial decisions and to encourage investors and consumers to plan for possible diminished financial capacity well before it happens.
What is diminished financial capacity?
“Diminished financial capacity” is a term used to describe a decline in a person’s ability to manage money and financial assets to serve his or her best interests, including the inability to understand the consequences of investment decisions.  While the inability to manage one’s money is clearly a problem in itself, when people of any age lose the capability to manage their finances, they may also become more vulnerable to investment fraud and other forms of financial abuse.
Preparing for Your Own Financial Future: Hope for the Best, But Plan for the Worst.
Losing the ability to manage your finances may be something you’d rather not think about.  We often think about our financial capabilities, like our ability to drive, as an important measure of our independence.  But planning ahead may help you stay in control of your finances, even if diminished financial capacity becomes a serious problem.  Taking the steps listed below now may help avoid or minimize problems for you and your family.
  • Organize your important documents.  Organize and store important documents in a safe, easily accessible location.  That way, they are readily available in an emergency.  Give copies to trusted loved ones or let them know where to find the documents.  Typically, the following documents will be most relevant to your finances:
  • Bank and brokerage statements and account information.  Make a list of your accounts with account numbers.  Keep a separate list of online bank and brokerage passwords and PINs and keep the lists in a safe place.  In addition, make a list of the locations of your safe-deposit boxes, including where the keys to the safe-deposit boxes are located.  Also, keep your recent bank and brokerage statements available, as well as information about how to get those statements online if you access them electronically.
  • Mortgage and credit information.  Make a list of your debts and regular payments, with account numbers and names of the financial institutions that issued the loans or credit cards.
  • Insurance policies
  • Pension and other retirement benefit summaries
  • Social Security payment information
  • Contact information for financial and medical professionals, such as doctors, lawyers, accountants, and securities professionals.
  • Provide your financial professionals with trusted emergency contacts.  If you have a financial professional, such as a broker or investment adviser, provide that person with emergency or alternate contact information in case he or she cannot contact you or suspects something is wrong.  You may wish to discuss with your financial professional what you would consider to be an “emergency,” and specify when he or she may contact someone on your behalf.  Discuss what information can be shared with your emergency contact.  For example, you might provide your financial professional with a simple written instruction, such as:  “Please call my son Mark at (222) 555-5555 if: (i) you are unable to reach me and there appears to be unusual activity regarding my account; (ii) you are unable to reach me for two weeks irrespective of any unusual account activity; or (iii) if you think I am confused or acting strangely.”  Providing an emergency contact generally will not enable the person to make investment decisions on your behalf – so be sure to take other steps if you want someone else to manage your accounts if you cannot.
  • Consider creating a durable financial power of attorney.  A financial power of attorney gives someone the legal authority to make financial decisions for you if you cannot.  That person is called your agent.  The document is called “durable” because it remains in effect even if you become incapacitated.  You retain the ability to change it or cancel it as long as you are still able to make decisions.  A financial power of attorney differs from a health care power of attorney, which only covers health care decisions.  You may want to consult with a lawyer to determine whether a durable financial power of attorney is right for you.  After signing a durable financial power of attorney, you can still manage your money and property as long as you have the ability to make decisions. Also, it is important to remember that you always have the option to change who you choose to act as your appointed representative and the individuals you allow to access your financial information.  As you are essentially giving financial decision-making authority to your agent, it is critical that he or she be someone you can trust.   
  • Think about involving a trusted relative, friend, or professional.  Besides listing them as emergency contacts, you may wish to give a trusted relative, friend, or professional an overview of your finances (even if you don’t want to share all the details).  For example, you might ask your broker or bank to send duplicate statements to your daughter or accountant.  You might also consider asking a trusted friend or relative to join you on periodic visits to your financial professional.  This would give someone you trust a sense of your financial situation and with whom you’ve been doing business.  If you choose to involve a relative or friend, it is very important it is someone you are sure you can trust.  Consider discussing the selection of the person with a number of other trusted friends or relatives.
  • Keep things up to date.  Be sure that if something changes (for example, you open a new account) you keep your information as current as possible.  Also, your trusted contact may change over time.  Keep your financial professionals informed of changes regarding who has authority to review your account or whom they should contact in case of an emergency.
  • Speak up if something goes wrong.  If you ever think someone is taking advantage of you, or that you’ve been the victim of a fraud, speak up.  Sadly, sometimes even financial professionals and people we know commit financial crimes.  There’s no shame in being a victim, and the sooner you let someone know about it, the better chance there is of putting an end to it.  Contact information for reporting abuse appears at the end of this document.
Helping Others Who May Have Diminished Financial Capacity
You may have a parent or other loved one with diminished financial capacity, or who you worry may face that issue in the future.  If so, consider the following steps to help. 
  • Have an open conversation about investments and other financial matters sooner rather than later.  Even if it feels awkward, it is important to have an honest conversation about finances.  Ask your loved one to consider taking the steps outlined above.  Even if he or she does not want to take these steps, ask your relative or friend to consider how he or she wants to maintain control of his or her finances in the future.  Explain that advance planning is a way to make sure that a trusted person makes decisions if he or she no longer can.
  • Help your relative or friend with managing finances.  You may also offer to take a more active role in helping your loved one manage his or her financial accounts.  Be alert both to mistakes that your loved one may make in managing finances and to any signs of elder financial abuse.  It can be hard to tell whether actions are the result of confusion or of financial exploitation.  For example, if you find that a loved one has paid the same bill twice by mistake, you should help him or her fix the error.  But beware that multiple or unusual payments could also be a sign of financial exploitation, so don’t rule out that possibility without looking into it.  Be on guard for any sudden changes in investments that seem out of keeping with the loved one’s longstanding goals, values and investment style.  These changes may have come about because of confusion or may be a sign of financial exploitation.
  • If your family member or friend has named you to manage money or property, understand your responsibilities and how you can protect your loved one from financial exploitation.  For example, your loved one may have named you as an agent under a power of attorney or a trustee under a revocable living trust.  Read the Consumer Financial Protection Bureau’s Managing Someone Else’s Money guides.  They walk you through your duties, tell you how to watch out for financial exploitation and scams, and tell you where you can go for help. 
If you’ve been asked by a loved one or friend to help out with his or her finances, here are some things you can do to help. 
  • Help with ongoing financial responsibilities.  You may need to take on immediate tasks, such as helping to pay bills, arranging for benefit claims, preparing tax returns, or helping with investment decisions.
     
  • Review their investment portfolio.  This might be a good time to help reevaluate the person’s portfolio in light of his or her financial and medical situation.  Does the person expect a big increase in health care, personal care or other costs as a result of his or her illness or disability?  If so, will he or she have enough cash or liquid assets on hand to cover those costs?  (Liquid investments are assets that the owner can sell readily and without paying a hefty fee to get money when it is needed.)  These can be complex questions and you may wish to discuss them with a financial professional.  Keep in mind that buying and selling investments on behalf of a loved one requires legal authority, through a power of attorney, a trust or similar arrangement.
  • Assess the riskiness of their investment portfolio.  All investments involve some level of risk.  But do the investments present the right level of risk at this stage of the person’s life?  If not, you may wish to consider contacting a registered investment adviser representative or registered broker-dealer representative for help.
  • Contact their investment professional.  If your loved one has a financial professional and has authorized that person to speak with you, make the professional aware of your loved one’s condition.  This is critical so that the financial professional can make recommendations appropriate to the client’s financial needs and can watch for signs of declining financial skills or potential abuse.
Your financial professional, or that of your loved one, may raise topics discussed in this bulletin.  Financial services firms are paying increasing attention to improving communications on this subject.  If a financial professional does not raise these topics, however, you should feel free to raise them yourself. 
Additional Resources
To Report Suspected Elder Abuse
  • To report suspected elder abuse in general, locate the appropriate adult protective services agency by calling the Eldercare Locator at (800) 677-1116, or
    www.eldercare.gov.
  • Elder financial abuse often violates one or more criminal laws.  To report it, contact your local police or sheriff.
  • To report suspected elder financial abuse involving brokers or investment advisers, contact:
To Submit a Complaint with the CFPB
  • If you have an issue with a consumer financial product (such as a mortgage or credit card), you can submit a complaint to CFPB.  CFPB will forward your complaint to the company and work to get a response from them. Visit consumerfinance.gov/complaint or call (855) 411-2372.
The SEC’s Office of Investor Education and Advocacy and the CFPB’s Office of Older Americans have provided this information as a service to investors and consumers.  It is neither a legal interpretation nor a statement of SEC or CFPB policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities or consumer finance law.

Merrill Lynch Admits Using Inaccurate Data for Short Sale Orders, Agrees to $11 Million Settlement



06/01/2015 02:30 PM EDT

The Securities and Exchange Commission today charged two Merrill Lynch entities with using inaccurate data in the course of executing short sale orders.  Merrill Lynch agreed to admit wrongdoing, pay nearly $11 million, and retain an independent compliance consultant in order to settle the charges.
According to the SEC's order instituting a settled administrative proceeding, Merrill Lynch and other broker-dealers are routinely asked by customers to "locate" stock for short selling, and firms prepare easy-to-borrow (ETB) lists comprised of stocks they have deemed readily accessible for the purpose of granting locates.  At times during the course of a trading day, some securities that Merrill Lynch placed on its ETB list that morning became no longer easily available to borrow as determined by lending desk professionals tracking market events and other daily developments.
The SEC's order finds that Merrill Lynch personnel appropriately ceased using the ETB list to source locates when availability of certain shares became restricted, but the firm's execution platforms were programmed to continue processing short sale orders based on the ETB list.  For example, while personnel received responses from lenders that a supply of a particular security was no longer available, Merrill Lynch's systems continued to rely on the ETB list and execute short sales totaling thousands of shares of that security.  It wasn't until the platforms received the next day's ETB list that they returned to utilizing accurate and present data.  After the SEC started investigating, Merrill Lynch began implementing systems enhancements to correct the problem.
"Firms must comply with their short-selling obligations by making sure they do not rely on inaccurate ETB lists," said Andrew M. Calamari, Director of the SEC's New York Regional Office.  "When firm personnel determine that a security should no longer be considered easy to borrow, the firm's systems need to incorporate that knowledge immediately."
The SEC's order further finds that for a period until 2012, a flaw in Merrill Lynch's systems occasionally triggered the inadvertent use of day-old data when constructing ETB lists.  The stale data caused some securities to be included on an ETB list when they should not have been.
Merrill Lynch admits violating Rule 203(b) of Regulation SHO of the Securities Exchange Act of 1934, and the SEC's order requires the firm to cease and desist from committing or causing any future violations.  Merrill Lynch agreed to pay a $9 million penalty, $1,566,245.67 in disgorgement, and $334,564.65 in prejudgment interest.  The independent compliance consultant must conduct a comprehensive review of the firm's policies, procedures, and practices for accepting short sale orders for execution, effecting short sales in reliance on the ETB list, and monitoring compliance.