Wealthfront is a registered investment adviser to retail clients that uses a software-based "robo adviser" platform. Wealthfront applies a proprietary tax loss harvesting program ("TLH") to clients' taxable accounts. Wealthfront designed TLH to create tax benefits for clients by selling certain assets at a loss that, if realized, can be used to offset income or gains on other transactions, thereby reducing clients' tax liability in a given year. Wealthfront makes available on its website for clients whitepapers containing client disclosures and outlining TLH, among other topics. From October 2012 through mid-May 2016, Wealthfront falsely stated in its TLH whitepaper that it monitored all client accounts to avoid any transactions that might trigger a wash sale. Generally, a wash sale occurs when an investor sells a security at a loss and, within 30 days of this sale, buys the same or a substantially identical security. A wash sale prevents the tax benefit of having sold the asset to realize a loss. In fact, until mid-May 2016, Wealthfront did not monitor client accounts to avoid any transaction that might trigger a wash sale. In Wealthfront's TLH program, wash sales could occur, or were permitted, in certain circumstances relating to the management of a client account such as rebalancing a client portfolio or client directed transactions. In addition, Wealthfront retweeted certain tweets from its clients on its Twitter account that constituted testimonials, which investment advisers are not permitted to publish without required disclosure. Wealthfront also paid bloggers for new client referrals, based on the amount of assets the new client initially deposited, without complying with applicable disclosure and documentation requirements. Wealthfront also failed to adopt and implement policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder.
1. This matter involves a registered investment adviser-Hedgeable-that disseminated false and misleading marketing materials and performance data. Hedgeable operates a "robo-adviser": an automated digital investment advisory program that is marketed to individuals, small business owners, trusts, corporations and partnerships through the fund's website, Hedgeable.com, as well as through social media platforms.2. From at least 2016 until April 2017, Hedgeable posted on its website and social media platforms a "Robo-Index," which purportedly allowed clients and prospective clients to compare the performance from 2014 and 2015 of two other robo-advisers-"Robo-Adviser 1" and "Robo-Adviser 2"-to the performance of Hedgeable's clients during the same period, which were aggregated in a "Hedgeable Composite." The Robo-Index and Hedgeable Composite were misleading in several respects. First, the Hedgeable Composite only included a small subset-less than 4%-of the total number of Hedgeable clients during the 2014 and 2015 period. Second, Hedgeable's calculation methodology of the Robo-Index was incorrect, as it was not based on Robo-Adviser 1's or 2's actual trading models, but was instead an approximation of Robo-Adviser 1's or 2's performance based on information available from their websites. Third, even using its own methodologies, Hedgeable incorrectly calculated the annualized returns for both the RoboIndex and the Hedgeable Composite. Hedgeable failed to maintain sufficient documentation to substantiate the returns presented in the Robo-Index or the Hedgeable Composite. Hedgeable also posted misleading fact sheets on its website that overstated the returns of various Hedgeable ETFs, as compared to certain benchmarks of blended index returns.3. Hedgeable's dissemination of false and misleading marketing materials and performance data was caused, in part, by its ineffective compliance program. Hedgeable's compliance policies and procedures did not require any officer of Hedgeable to review or approve marketing materials or performance data posted on Hedgeable's digital media platforms.
[K]uczora argues that the judge did not adequately explain the upward variance and failed to give him advance notice of the grounds that supported it. He also argues that the sentence is substantively unreasonable.We affirm. The district judge thoroughly explained his reasoning, and we have never held that a judge must give advance warning of an upward variance. To the contrary, every defendant is on notice that the court has the discretion to impose a sentence above, below, or within the Guidelines range based on the factors listed in 18 U.S.C. § 3553. Finally, the 70-month sentence is not substantively unreasonable. Although the Guidelines can be a rough approximation of what § 3553(a) warrants, the judge did not exceed his broad discretion in concluding that a heavier penalty was justified here.
Kendall County Real Estate Professional Charged with Operating $23 Million Ponzi Scheme (DOJ Release)
Michelle Labra, the owner/operator of Labra Group Realtors LLC, was indicted in the United States District Court for the Northern District of Illinois on with three counts of wire fraud and one count of making a false statement to the U.S. Treasury Inspector General for Tax Administration. The Indictment alleges that Labra claimed that investor funds would be be fully repaid, used to make short-term, high-interest loans to borrowers, and that the loans would be secured by the borrowers' residences. Allegedly, Labra never entered into any agreements with borrowers, and she took steps to conceal her fraud. In one example, Labra falsely claimed that IRS agents had issued levies and seized investor funds from the Labra Group's bank accounts, the indictment states. The Indictment alleges taht at least 25 investors invested $23 million, of which Labra spent approximately $19.6 million to pay earlier investors via Ponzi-type payments, while misappropriating more than $3.3 million for her personal benefit, including expensive jewelry and vacations in Jamaica, Mexico and Guatemala, the indictment states. READ the Indictment https://www.justice.gov/usao-ndil/press-release/file/1122676/download
Report on Selected Cybersecurity Practices 2018 (FINRA)
As set forth in the Report's preamble:
In the Matter of the Arbitration Between Kathryn L. Honea, Claimant, v. Raymond James Financial Services, Inc. and Bernard Ross Michaud, Respondents (FINRA Arbitration 06-03491 / January 2, 2008) http://brokeandbroker.com/PDF/HoneaFINRAArb.pdf, public customer Honea filed a Statement of Claim in 2006 asserting in part fraud, breaches of fiduciary duty and contract, and negligence in connection with transactions in such securities as Applied Micro Circuits; Juniper Networks, Inc.; Nokia Corp.; Nortel Networks Corp.; Oracle Corporation; Siebel Systems Inc.; Sun Microsystems Inc.; Lucent Technologies; JDS Uniphase; Cisco Systems; and. Motorola Inc. Claimant Honea sought $1.2 million in compensatory and also in punitive damages, interest, and attorneys' fees. Respondents generally denied the allegations. The FINRA Arbitration Panel denied all of Claimant's claims notwithstanding that:
When selecting the topics for this report, FINRA considered the evolving cybersecurity threat landscape, firms' primary challenges and the most frequent cybersecurity findings from our firm examination program. First, we address how firms have strengthened their cybersecurity controls in branch offices, which is especially important for firms with decentralized business models. Second, we discuss limiting phishing attacks, which remain a top cybersecurity challenge for many firms. Third, we explain the importance of identifying and mitigating insider threats, which are of concern for many firms. Fourth, we describe the elements of a strong penetration testing program. Finally, we share observations regarding establishing and maintaining controls on mobile devices, which have emerged as a significant risk for many firms because of their increasingly widespread use by employees and customers.
[T]he Panel makes an express finding that Respondent Michaud did not sufficiently know his client nor make sufficient inquiry to attempt to know his client, her holdings, and/or her investment experience. These failures contributed to losses in Claimant's account. However, Claimant's claims are all barred by the applicable statutes of limitations.
In case no. 1130590, Kathryn L. Honea appeals from the denial of her motion to vacate an arbitration award entered in favor of Raymond James Financial Services, Inc. ("Raymond James"), and Bernard Michaud, an employee of Raymond James (hereinafter referred to collectively as "RJFS"). We affirm in part, reverse in part, and remand. In case no. 1130655, RJFS appeals the trial court's denial of its motion to dismiss for lack of jurisdiction; that appeal is dismissed.
Barbara Duka https://www.sec.gov/litigation/admin/2018/33-10599.pdfhttps://www.sec.gov/litigation/admin/2018/33-10598.pdfTod A. Ditommaso, Esq. https://www.sec.gov/litigation/admin/2018/33-10597.pdfMichael W. Crow https://www.sec.gov/litigation/admin/2018/33-10596.pdfFrank H. Chiappone, et al. https://www.sec.gov/litigation/admin/2018/33-10595.pdfBioElectronics, Corp., et al. https://www.sec.gov/litigation/admin/2018/33-10594.pdfPaul Edward "Ed" Lloyd, Jr. https://www.sec.gov/litigation/admin/2018/ia-5089.pdfhttps://www.sec.gov/litigation/admin/2018/ia-5088.pdfTimbervest, LLC https://www.sec.gov/litigation/admin/2018/ia-5093.pdfhttps://www.sec.gov/litigation/admin/2018/34-84922.pdfhttps://www.sec.gov/litigation/admin/2018/34-84919.pdfJames P. Griffin https://www.sec.gov/litigation/admin/2018/34-84915.pdfDarren M. Bennett, CPA https://www.sec.gov/litigation/admin/2018/34-84912.pdfhttps://www.sec.gov/litigation/admin/2018/34-84911.pdfhttps://www.sec.gov/litigation/admin/2018/34-84918.pdf