Securities Industry Commentator by Bill Singer Esq

December 22, 2020

SEC Charges Company and CEO for $119 Million Securities Fraud Targeting Members of the South Asian American Community (SEC Release)

SEC Charges Texas-Based Investment Adviser and Its President for Conducting Fraudulent "Cherry-Picking" Scheme (SEC Release)

SEC Charges Real Estate Developer with Fraud (SEC Release)

Texas Stops Fraudulent "Amazon Store" E-Commerce Partnership Scheme (TSSB Release)

As set forth in part in the FINRA Release announcing the AWC settlement

FINRA announced today that Transamerica Financial Advisors, Inc. (TFA) has agreed to pay approximately $4.4 million in restitution to approximately 2,400 customers for failing to supervise its registered representatives' recommendations of three different products - variable annuities, mutual funds, and 529 plans. FINRA also fined TFA $4.4 million.

First, FINRA found that from May 1, 2010 through May 15, 2016, TFA failed to reasonably supervise representatives' variable annuity recommendations. During this period, the firm's commissions from the sale of variable annuities comprised more than 40 percent of the firm's total revenue yet TFA's system for supervising variable annuity sales and exchanges was deficient, resulting in various sales practice violations. Most significantly, the firm failed to detect that certain of its representatives made thousands of misstatements to customers in recommending variable annuity exchanges, understating the benefits of the existing variable annuity, and overstating the benefits of the new variable annuity. 

Secondly, from January 1, 2009, through November 15, 2016, TFA failed to reasonably supervise representatives' sale of certain mutual funds. FINRA found TFA relied on its representatives to determine the applicability of sales charge waivers to customers' mutual fund purchases, but the firm failed to provide guidance to representatives to help them make this determination, and failed to establish a system to verify whether waivers were properly applied. As a result, TFA failed to apply approximately $438,239 in available sales charge waivers to customers. 

Finally, from May 1, 2010 through May 31, 2015, TFA failed to reasonably supervise representatives' recommendations to customers to purchase particular share classes of 529 savings plans. TFA did not provide adequate guidance to representatives regarding the importance of considering share-class differences when recommending 529 plans and failed to provide supervisors with the information necessary to properly evaluate the suitability of 529 share-class recommendations.
What a difference a day makes, 24 little hours. Nice tune. A classic. Unfortunately, for one wannabe Merrill Lynch Preferred Transition Specialist Trainee, it was the 25th little hour in jail that proved to be her undoing. For Wall Street's Big Boys, however, the letter and the number of the Law is often of no consequence; and when it is or should be, well, you know how things work: The industry's behemoths hire a large law firm, that law firm submits a letter seeking a waiver/exemption, that letter is often drafted by a former regulator, and, lo and behold, Eurkea!!!, the plain-and-simple Law proves not-so plain and not-so simple, and the letter or the number of the Law gets fudged -- some might even say erased.
In a Complaint filed in the United States District Court for the Northern District of California, the SEC charged  real estate development company SiliconSage Builders LLC, a/k/a Silicon Sage Builders, and its sole owner, Sanjeev Ach with violating the antifraud provisions of the federal securities laws. As alleged in part in the SEC Release:

[S]ilicon Sage Builders and Acharya raised money from approximately 250 retail investors, most of whom were members of the Northern California South Asian community, by falsely describing Silicon Sage Builders' real estate business as profitable and promising investors exorbitant returns. In fact, as the complaint alleges, from 2016 to 2019, all but one of Silicon Sage Builders' projects had significant cost overruns and did not generate enough money to pay investors the promised returns.  Acharya, as alleged in the complaint, misled investors into believing the payments they received were derived from Silicon Sage Builders' profits when, in reality, Silicon Sage Builders and Acharya had used new investor funds to pay earlier investors. The complaint also alleges that Acharya misled investors as to the amount of money the company was attempting to raise and falsely told investors they could redeem their investments despite there being insufficient funds to meet redemption requests.
In a Complaint filed in the United States District Court for the Northern District of Texas, the SEC charged  investment adviser TH Wealth Management, LLC and its sole owner/principal, Brian Keat Hobbs, with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the Securities Act, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. As alleged in part in the SEC Release:

[F]rom at least December 2016 through March 2019, Hobbs placed options trades using TH Wealth's omnibus trading account, which is intended to facilitate purchases of securities for multiple client accounts. As alleged, Hobbs placed the option trades early in the trading day but did not allocate the trades to specific clients or Hobbs's personal accounts until the end of the day. The complaint alleges that Hobbs then disproportionately allocated profitable trades to his personal accounts and allocated the unprofitable trades to his clients' accounts. As alleged in the complaint, Hobbs and TH Wealth also misrepresented to clients that all trades would be equitably allocated., the SEC charged Dike Nerren with violating the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act. Without admitting or denying the SEC's allegations, Nerren agreed to be permanently enjoined from violating the charged provisions and to pay a $37,500 civil penalty. As alleged in part in the SEC Release;

[B]etween 2015 and 2017 Nerren raised approximately $1.4 million through Sapient Fund II, LLC and Vintage Place Fund, LP. The complaint alleges that Nerren diverted $450,000 of those funds to an unrelated real estate project he was developing, without disclosure to investors and in contravention of the disclosures in the offering materials. According to the complaint, although Nerren began repaying the diverted funds, the project experienced financial difficulties and Nerren was unable to pay the project's bills because of the diversion of funds. As alleged, the McKinney project was ultimately foreclosed, resulting in a total loss for the investors.

Texas Stops Fraudulent "Amazon Store" E-Commerce Partnership Scheme (TSSB Release)
The Texas State Securities Board filed an Emergency Cease and Desist Order
to stop an allegedly fraudulent investment scheme. As alleged in part in the TSSB Release: 

The order accuses Christopher Koozekanani of illegally marketing "secured" partnership interests issued by Prime Liquidators - an online liquidation business purportedly dealing in high-end products such as expensive handmade imported rugs and home furnishings.  Prime Liquidators purportedly operates as an "Amazon Store," profiting by selling these goods for below-market prices.

Investors can buy into the opportunity for as little as $2,000, according to the order.  Koozekanani is allegedly telling investors their purchases can reap lucrative returns - they may even receive a return of principal after four months and then simply profit from a passive stream of residual income. 

Although any "secured" investment may prove appealing, Koozekanani is charged with concealing critical information from investors - including information about NeuMacro Investments, LLC, the parent company of Prime Liquidators, and Michael Ray Abri, the principal of NeuMacro Investments.  The order also accuses parties of misleading investors about the security and profitability of the investments.

The respondents are not registered to sell securities in Texas, and the partnership interests issued by Prime Liquidators are not registered for sale in Texas. 

Koozekanani has a checkered history of dealing in investments, according to the order.  Beginning as early as 2016, Koozekanani allegedly perpetrated prior investment schemes tied to cryptocurrency and foreign currency trading.  The order alleges he failed to fulfill his obligations to prior investors and/or they lost principal in the schemes. 

Koozekanani also borrowed money from at least one prior investor and failed to repay the loan, according to the order.  The order alleges the debt remains outstanding.