The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
April 20, 2020
Order: 'Profit Off Coronavirus' Investment Pitch is Toxic (TSSB Release)
SEC Orders Three Self-Reporting Advisory Firms to Reimburse Investors / Brings Total SEC Has Ordered Returned to Investors as Part of its Share Class Selection Disclosure Initiative to More Than $139 Million (SEC Release)
https://www.sec.gov/news/press-release/2020-90
https://www.sec.gov/news/press-release/2020-90
The SEC entered into separate Orders settling charges pursuant to its Share Class Selection Disclosure Initiative
https://www.sec.gov/enforce/announcement/scsd-initiative:
https://www.sec.gov/enforce/announcement/scsd-initiative:
- Order with Merrill Lynch, Pierce, Fenner & Smith Incorporated
https://www.sec.gov/litigation/admin/2020/ia-5479.pdf and - Order with Eagle Strategies LLC
http://www.sec.gov/litigation/admin/2020/ia-5480.pdf,
1. These proceedings arise out of breaches of fiduciary duty and inadequate disclosures by registered investment adviser Merrill Lynch, Pierce, Fenner & Smith, Incorporated in connection with its mutual fund share class selection practices and the fees it received pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("12b-1 fees"). At times during the period January 1, 2014 to May 31, 2018 (the "Relevant Period"), Respondent purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds for which the clients were eligible. Respondent received 12b-1 fees in connection with these investments. Respondent failed to disclose in its Form ADV or otherwise the conflicts of interest related to (a) its receipt of 12b-1 fees, and/or (b) its selection of mutual fund share classes that pay such fees. During the Relevant Period, Respondent received 12b-1 fees for advising clients to invest in or hold such mutual fund share classes.2. Respondent self-reported to the Commission the violations discussed in this Order pursuant to the Division of Enforcement's (the "Division") Share Class Selection Disclosure Initiative ("SCSD Initiative"). Accordingly, this Order and Respondent's Offer are based on the information self-reported by Respondent.
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1. These proceedings arise out of breaches of fiduciary duty and inadequate disclosures by registered investment adviser Eagle Strategies LLC in connection with its mutual fund share class selection practices and the fees its affiliated broker received pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("12b-1 fees"). At times during the period January 1, 2014 to March 30, 2016 (the "Relevant Period"), Respondent purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds for which the clients were eligible. Respondent's affiliated broker received 12b-1 fees in connection with these investments. Respondent failed to disclose in its Form ADV or otherwise the conflicts of interest related to (a) its affiliated broker's receipt of 12b-1 fees, and/or (b) Respondent's selection of mutual fund share classes that pay such fees. During the Relevant Period, Respondent's affiliated broker received 12b-1 fees as a result of Respondent advising clients to invest in or hold such mutual fund share classes. Respondent self-reported to the Commission the violations discussed in this Order pursuant to the Division of Enforcement's (the "Division") Share Class Selection Disclosure Initiative ("SCSD Initiative").
2 Accordingly, this Order and Respondent's Offer are based on the information self-reported by Respondent.
In its:
- Order with Cozad Asset Management Inc.,
http://www.sec.gov/litigation/admin/2020/ia-5477.pdf,
1. These proceedings arise out of breaches of fiduciary duty and inadequate disclosures by Cozad, a registered investment adviser, in connection with its mutual fund share class selection practices and the fees certain of its associated persons received pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("12b-1 fees"). During the period January 1, 2014 through October 31, 2018 (the "Relevant Period"), Respondent and its associated persons - each of whom also was a registered representative of an unaffiliated broker-dealer registered with the Commission, which is also a registered investment adviser (the "Unaffiliated BD/IA") - purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds that were available to those clients. Certain of Respondent's associated persons received, as registered representatives of the Unaffiliated BD/IA, 12b-1 fees in connection with clients' investments in the mutual fund share classes that paid those fees. Respondent also benefitted when clients were invested in these share classes. Respondent did not adequately disclose the conflicts of interest relating to selection of these share classes in its Forms ADV or otherwise.2. Additionally, Respondent failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its mutual fund share class selection practices. . . .
https://www.ssb.texas.gov/news-publications/order-profit-coronavirus-investment-pitch-toxic
The Texas State Securities Board entered an Emergency Cease and Desist Order
https://www.ssb.texas.gov/sites/default/files/ENF_20_CDO_1803.pdf against Kenzley Ramos , who is allegedly soliciting investments of $200 to $2,000 to trade forex and binary options. As alleged in part in the TSSB Release:
https://www.ssb.texas.gov/sites/default/files/ENF_20_CDO_1803.pdf against Kenzley Ramos , who is allegedly soliciting investments of $200 to $2,000 to trade forex and binary options. As alleged in part in the TSSB Release:
[R]amos is promising to generate weekly returns of 300% and will collect a 15% fee on the balance whenever investors withdraw their funds. Ramos is guaranteeing the payment of returns, according to the order, saying there is "[n]o possible way [investors] can lose money."People who invested with Ramos have lost money, according to the order. In December 2019, one investor sent $1,000 to a bank account owned by Kenzley Ramos, giving it a balance of $1,035.Two days later, Ramos withdrew $1,020 in cash from the account. According to the order, Ramos stopped communicating with the investor, never paid the promised profits on the account, and never returned the $1,000 principal deposit.Ramos is violating the Texas Securities Act by offering securities without being registered as a dealer or agent. The investments in the forex and binary option trading program aren't registered for sale in Texas.Ramos isn't the only name he uses. According to the order, Ramos is misleading investors with the use of at least two aliases - Anthony David "Tony" Mckinney and Anthony Green.Although prior investors are complaining in several widely used online consumer protection forums, Ramos is dismissing these complaints. According to the order, he is falsely claiming the complaints were published by his competitors to attack his business.State securities regulators have repeatedly warned about the complexity and risks in currency trading and in binary options investing.Besides not telling potential investors he hasn't delivered profits to previous investors, Ramos is not disclosing the long list of inherent risks in forex and binary option trading.
http://www.brokeandbroker.com/5181/IRA-Estate-FINRA/
In Charles Dickens' "Bleak House," we come across the epic lawsuit of Jarndyce v Jarndyce, which starts off with an inheritance that slowly but surely is depleted by legal costs. As we have reported in the Broke And Broker Blog, disappointed beneficiaries often insist that a decedent must have done X -- and if the decedent didn't, well, you know, the stockbroker or brokerage firm is at fault because they should have insisted that X be done. Of course, human nature and relationships (both marital and otherwise) being what they are, sometimes folks do inexplicable things for reasons that they take to the grave with them.
SEC Charges Former Registered Representative with Defrauding Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2020/lr24798.htm
https://www.sec.gov/litigation/litreleases/2020/lr24798.htm
In a Complaint filed in the United States District Court for the Northern District of West Virginia
https://www.sec.gov/litigation/complaints/2020/comp24798.pdf, the SEC charged Phillip W. Conley with violations of the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2020/comp24798.pdf, the SEC charged Phillip W. Conley with violations of the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. As alleged in part in the SEC Release:
[B]etween January 2014 and September 2018, Conley induced investors to purchase securities by making a series of materially false and misleading statements and omissions concerning the legitimacy of the investments and the use of investor proceeds. Conley allegedly failed to invest those proceeds as promised and instead comingled investor funds in bank accounts that he controlled. Conley allegedly used most of the funds for his personal benefit, including, among other things, private jet rentals, luxury purchases, dining, and entertainment, while using the remainder to make Ponzi-like payments to earlier investors.
https://www.sec.gov/litigation/litreleases/2020/lr24799.htm
A final judgment on consent was entered in the United States District Court for the Southern District of New York against Amir Waldman in an insider trading case. In an Amended Complaint, the SEC had alleged that Waldman had engaged in suspicious trading in the securities of Mobileye, N.V., a software and technology developer of an autonomous driving system. The Complaint alleged that Mobileye founders provided nonpublic information about a tender offer by Intel Corporation to James Shaoul, who provided the information to his close friend, Waldman. Allegedly, Waldman realized $4.5 million in profit from trading on Shaoul's tip. The final judgment against Waldman enjoins him from violating the antifraud provisions of Section 14(e) of the Securities Exchange Act and Rule 14e-3 thereunder, and orders Waldman to pay $1,078,300 in disgorgement, $40,889 in interest, and a $1,078,300 civil penalty.
In the Matter of Mark Feather (Order Following Prehearing Conference, Admin. Proc. Rul. Rel. No. 6752, Admin.. Proc. File No. 3-15755)
https://www.sec.gov/alj/aljorders/2020/ap-6752.pdf
https://www.sec.gov/alj/aljorders/2020/ap-6752.pdf
Following a telephonic prehearing conference, SEC Administrative Law Judge ("ALJ") James Grimes rendered his Order (the "ALJ's Order"), which addressed several issues presented by Feathers (who appeared pro se) and the Division of Enforcement. Among the five matters subject to the ALJ's Order, I noted two interesting issues in two of them. Under the respective headings noted below ALJ Grimes set forth the following:
Referral to Office of Inspector GeneralFeathers has requested that I ask the Office of Inspector General to review the Division's litigation conduct in the underlying civil proceeding. This motion is DENIED without prejudice. I am not in a position to pass judgment on litigation conduct that did not occur before me. As the Commission has stated, a follow-on proceeding is "not the appropriate forum for challenging the propriety of the Division's conduct in [an underlying] injunctive action; such a challenge should have been brought before the District Court."1 The Office of Inspector General accepts complaints from the public, and Feathers may submit his complaint directly to that office.= = = = =Footnote 1: 1 Harold F. Harris, Securities Exchange Act of 1934 Release No. 53122A, 2006 WL 307856, at *6 (Jan. 13, 2006); see also Blinder, Robinson & Co. v. SEC, 837 F.2d 1099, 1108 (D.C. Cir. 1988) (holding that an attack on the Division's conduct related to an underlying injunctive proceeding was "doomed to fail").
Stalker ReportAnnette M. Stalker prepared a report that was filed in Feathers's criminal case. It appears that Feathers will offer this report into evidence during this proceeding. Because the content of the report, however, contradicts findings made by the district court in the civil case that is the predicate for this follow-on proceeding, it is not clear that I could properly consider it in this proceeding.2 Nonetheless, because Feathers has yet to offer the report into evidence, I need not now resolve whether to admit it. Feathers indicated during the conference that he intends to rely on the report as an expert report. As I explained to him, expert reports must comply with Rule of Practice 222(b).3 And a party's expert must be made available for cross-examination at any merits hearings. If Feathers offers the report as an exhibit without calling Stalker as an expert witness and outside of the requirements of Rule 222(b), he should be prepared to show that it is relevant, material, not unduly repetitious, and reliable.4 Feathers must therefore show how facts or opinions in the report-that are not contradicted by the district court's findings-are relevant to the Steadman public interest factors.5= = = = =Footnote 2: See Sherwin Brown, Investment Advisers Act of 1940 Release No. 3217, 2011 WL 2433279, at *4 (June 17, 2011) ("The doctrine of collateral estoppel precludes the Commission from reconsidering the injunction as well as factual and procedural issues that were actually litigated and necessary to the court's decision to issue the injunction. Thus, we have repeatedly stated that a respondent in a follow-on administrative proceeding may not challenge the findings made by the court in the underlying proceeding.")Footnote 3: 17 C.F.R. § 201.222(b).Footnote 4: 17 C.F.R. § 201.320.Footnote 5: See Jose P. Zollino, Exchange Act Release No. 55107, 2007 WL 98919, at *4 (Jan. 16, 2007) ("While Zollino may not challenge the allegations that provide the basis for the court action, he was free to introduce evidence regarding the circumstances surrounding those allegations as means of addressing whether sanctions should be imposed in the public interest." (internal quotation marks omitted)); see also Siris v. SEC, 773 F.3d 89, 95 (D.C. Cir. 2014) ("[T]he petitioner may not relitigate those factual questions conclusively decided in the underlying civil suit, but the Commission must consider mitigating evidence proffered by the petitioner about the circumstances surrounding his misconduct.").