Securities Industry Commentator by Bill Singer Esq

December 22, 2017

SEC Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors (SEC Press Release 2017-235) According to an SEC Complaint filed in the United States District Court for the Southern District of Florida, Robert H. Shapiro and a group of unregistered investment companies called the Woodbridge Group of Companies LLC engaged in a $1.2 billion Ponzi scheme that defrauded over 8,400 investors, many of them senior citizens. READ the FULL TEXT SEC Complaint. As set forth in part in the SEC Press Release:

[W]oodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15% annual interest for "hard money," short-term financing.  In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually.  Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that "clients keep coming back to [Woodbridge] because time and experience have proven results.  Over 90% national renewal rate!"  While Woodbridge claimed it made high-interest loans to third parties, the SEC's complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.

The SEC complaint alleges that Shapiro and Woodbridge used investors' money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as "low risk" and "conservative."  Shapiro, of Sherman Oaks, California, is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry.  According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.

FINRA Fines Raymond James Financial Services, Inc. $2 Million for Failing to Reasonably Supervise Email Communications (FINRA Press Release) The Financial Industry Regulatory Authority imposed a $2 million fine on member firm Raymond James Financial Services for its alleged failure to maintain reasonably designed supervisory systems and procedures for reviewing email communications. READ the FULL TEXT Acceptance, Waiver and Consent settlement agreement
As set forth in part in the FINRA Press Release:

FINRA found that during a nine-year review period, Raymond James' email review system was flawed in significant respects, allowing millions of emails to evade meaningful review. This created the unreasonable risk that certain misconduct by firm personnel could go undetected by the firm. The combinations of words and phrases - otherwise known as the "lexicon" - used to flag emails for review were not reasonably designed to detect certain potential misconduct that Raymond James, in light of its size, structure, business model, and experience from prior disciplinary actions, knew or should have anticipated would recur from time to time. The firm also failed to devote adequate personnel and resources to the team that reviewed emails flagged by the system, even as the number of emails increased over time.

FINRA also found that Raymond James did not periodically test the configuration and effectiveness of its lexicon-based email surveillance system. The firm's primary focus was reducing the number of "false positives" that would need to be reviewed rather than ensuring that the system was effectively identifying all potentially problematic categories of emails.

Has FINRA Just Threatened To Shut Down Wall Street's Fantasy Leagues And Office Sports Pools?

A recent FINRA regulatory settlement troubles and angers Blog publisher Bill Singer, Esq.  FINRA is so intent on ringing up the cash register for fines and sending some small fry to the penalty box that the self-regulator fails to see that hundreds of thousands of industry employee who are in a fantasy sports league or who make a weekly wager on sports are technically in violation of one of FINRA's most frequently enforced rules. Among Bill's choice words for this featured FINRA settlement are hypocritical, asinine, inane, moronic, stupid, pandering, insincere, sanctimonious, self-righteous; specious, spurious, and glib. 

Investment Adviser Charged with Running Ponzi Scheme (SEC Litigation Release 24019) In a Complaint filed in federal court, the SEC alleged that Stephen C. Peters, through his investment adviser firm VisionQuest Wealth Management, sold promissory notes issued by another one of his companies, VisionQuest Capital, to clients and other prospective investors while making false statements, including that proceeds would be invested into revenue-producing businesses with neither Peters nor his businesses receiving compensation. Peters allegedly claimed that the VisionQuest Capital notes presented little or no risk of loss and were "guaranteed." READ the FULL TEXT Complaint. 
Securities and Exchange Commission v. Stephen C. Peters, VisionQuest Wealth Management, LLC, VisionQuest Capital, LLC, and VQ Wealth, LLC, (United States District Court for the Eastern District of North Carolina, 17-CV-00630-D). In part the SEC Litigation Release alleges that:

[I]nvestor funds were not used as Peters claimed. Peters allegedly spent at least $4.4 million on such personal endeavors as remodeling a large farm in North Carolina, purchasing fine art for his home, and constructing a vacation home in Costa Rica. Peters also spent at least $4.9 million to make Ponzi payments to earlier investors.

Separately, the U.S. Attorney's Office for the Eastern District of North Carolina filed criminal charges against Peters, alleging, in part, that Peters attempted to withhold and conceal records from the SEC, fabricated records, and provided false testimony in the SEC's investigation of Peters' scheme.