The Securities and Exchange Commission (SEC) on February 3, 2017 charged Barry Connell, an investment adviser representative with stealing approximately $5 million from client accounts by initiating unauthorized wire transfers and issuing checks to third parties to cover personal expenses. According to the SEC allegations, Barry Connell, who worked in the New Jersey office of a major financial institution, conducted more than 100 unauthorized transactions by using falsified authorization forms misrepresenting that he received verbal requests from the clients. Connell allegedly used money from client accounts to rent a home in suburban Las Vegas and pay for a country club membership and private jet service. Read More
The Securities and Exchange Commission (SEC) on February 13, 2017 announced that Sidoti & Company LLC, a New York-based brokerage firm has agreed to pay a $100,000 penalty to settle charges of compliance and trading surveillance failures.Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.
The SEC’s order finds that Sidoti & Company had no written policies or procedures in place from November 2014 to July 2015 as it pertained to those making investment decisions for an affiliated hedge fund that invested in issuers covered by Sidoti’s research department and some other issuers for which Sidoti provided investment banking services. For example, Sidoti maintained a “daily restricted list” of securities restricting personal trading because Sidoti was involved in investment banking or marketing activities or the firm was publishing research on the security. There were 126 instances from Nov. 3, 2014 to May 5, 2015 when the hedge fund traded in a stock that appeared on the daily restricted list. Read More
On February 14, 2017, the SEC announced that Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.
The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs. Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy. Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many of the clients experienced losses.
On February 17, 2017 the Securities and Exchange Commission (the “SEC”) the North American Securities Administrators Association (“NASAA”) signed a crowding funding agreement. The agreement sets forth the rules to facilitate intrastate crowdfunding offerings and regional offerings take effect. The agreement signed by the SEC and NASAA is intended to facilitate the sharing of information to ensure that the new exemptions are serving their intended purpose of facilitating access to capital for small businesses. Under the memorandum of understanding (MOU), federal and state securities regulators will be better able to monitor the effects of the new rules and also guard against fraud.
The MOU was signed by SEC Acting Chairman Michael S. Piwowar and Mike Rothman, Minnesota Commissioner of Commerce and President of NASAA, which represents state securities administrators.
“The agreement not only builds on an already productive relationship between the SEC and state regulators, it also offers additional insights and protections as we help companies grow and create jobs while providing new opportunities to investors,” said Acting Chairman Piwowar. Read More
Guy Gentile Gets Good News
On January 30, 2017, brokerage firm owner Guy Gentile got the good news he’d been hoping for: Judge Jose Linares of the United States District Court for the District of New Jersey had dismissed the indictment filed against him by the Department of Justice. For Gentile, the judge’s order brings a welcome end to an involvement with the Federal Bureau of Investigation and the DOJ that had lasted nearly five years. We’ve written twice about Gentile, first in September 2016, and then in December of the same year. From our perspective, it was of interest as an example of the DOJ and FBI’s abuse of the considerable powers they possess.
In 2007 and 2008, Guy Gentile had participated in the promotion of two penny stocks, Raven Gold Corporation (RVNG) and Kentucky USA Energy, Inc. (KYUS). He was drawn into these schemes by Canadian promoters Mike Taxon and Itamar Cohen. The Securities and Exchange Commission eventually opened an investigation into both, suspecting pump and dump operations, and the DOJ took an interest as well. Gentile had no idea legal actions against him were being prepared, and turned to different projects after mid-2008. In 2011, he opened a new brokerage in the Bahamas that was designed to appeal to day traders. It was almost immediately successful, and he devoted his energies to it. Read More
On December 23, 2016, the United States District Court for the District of Massachusetts entered final judgments against Graduate Leverage, LLC, GL Capital Partners, LLC, GL Investment Services, LLC, Taft Financial Services, LLC, and GL Advisor Solutions, Inc. These entities were controlled and manipulated by Daniel Thibeault, the individual defendant in this SEC enforcement action filed in January 2015, who misappropriated money from an investment fund that he was managing. The entities have all stopped their former business operations. The final judgments against these companies impose permanent injunctions against future violations of certain antifraud provisions of the federal securities laws and order all but one of them to pay disgorgement and interest, jointly and severally, of approximately $17.1 million. Read More
On January 11, 2017, the U.S. District Court for the Eastern District of New York entered a final judgment against defendant Gregg R. Mulholland, a penny stock promoter charged in an SEC action with illegally selling more than 83 million penny stock shares that he allegedly held in the names of at least 10 different offshore entities.
The SEC’s complaint, filed on June 23, 2015, alleged that Mulholland surreptitiously accumulated, through at least ten offshore front companies, at least 84% of the issued and outstanding shares of Vision Plasma Systems Inc. Once Mulholland effectively controlled the company through this majority ownership, he liquidated his shares for proceeds of at least $21 million. No registration statement was filed or in effect covering Mulholland’s sales and no exemption from registration was available. Read More