Monday, April 21, 2014

SEC Charges Brokerage Firm Executives in Kickback Scheme to Secure Business of Venezuelan Bank

The Securities and Exchange Commission announced another round of charges in its ongoing case against several individuals involved in a massive kickback scheme to secure the bond trading business of a state-owned Venezuelan bank.

The SEC alleges that two executives at New York City-based brokerage firm Direct Access Partners (DAP) were integral participants in the wide-ranging fraud. Benito Chinea, who was a co-founder and CEO of the firm, and Joseph DeMeneses, who was DAP's managing partner of global strategy, devised and facilitated sham arrangements to conceal multi-million dollar kickback payments to a high-ranking Venezuelan finance official of the bank. In one instance, DeMeneses made kickback payments from funds he controlled to a shell entity controlled by the Venezuelan official, and Chinea arranged for the firm to reimburse DeMeneses. The allegations were made in a second amended complaint that the SEC submitted in federal court in Manhattan as part of its pending action against four individuals with ties to DAP as well as the head of DAP's Miami office, who were charged last year for their roles in the scheme.

In a parallel action, the U.S. Attorney's Office for the Southern District of New York and the U.S. Department of Justice's Criminal Division today announced criminal charges against Chinea and DeMeneses.

"The corruption at Direct Access Partners reached the very top," said Andrew M. Calamari, director of the SEC's New York Regional Office. "The schemers depended on Chinea as CEO to authorize outsized payments from the firm to be funneled as kickbacks to Venezuela."

The filing of the SEC's second amended complaint is subject to court approval. The SEC seeks disgorgement of ill-gotten gains plus interest and financial penalties against Chinea, who lives in Manalapan, N.J., and DeMeneses, who lives in Fairfield, Conn., as well as the five previously named defendants with ties to DAP, which has filed for bankruptcy.

Sunday, April 20, 2014

Lessons About Handling Money

I have represented a few professional athletes over the years. Unfortunately, it is after they have lost their wealth, or failed to plan for the end of their professional sports careers. They have either lost their money, or spent it, and are forced to sue their former advisors, or to create new business opportunities.

Entrepreneur.com has a story based on an interview conducted by NerdWallet  with Eric Sogard, the bespectacled second baseman for the Oakland A’s (where his nickname is “Nerd Power”) and runner-up in an online poll of fans for the #FaceofMLB. Sogard spoke the skills he’s learned to handle money and what he’s doing to secure his financial future.



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General Mills Reverses Itself - No Mandatory Arbitration

Reversing a policy that was an abuse of arbitration policy. legally unenforceable and a complete public relations disaster, General Mills has changed its mind, removed its silly mandatory arbitration policy, and has gone back to its original legal terms, without mandatory arbitration.

“Because our concerns and intentions were widely misunderstood, causing concerns among our consumers, we’ve decided to change them back to what they were,” Mike Siemienas, a company spokesman, wrote in the email. “As a result, the recently updated legal terms are being removed from our websites, and we are announcing today that we have reverted back to our prior legal terms, which contain no mention of arbitration.”

For more information, General Mills Reverses Itself on Consumers’ Right to Sue - NYTimes.com

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and insider trading trials. We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.

Saturday, April 19, 2014

FINRA is Looking to Hire Compliance Examiners

LogoFrom their job posting - FINRA is seeking a well qualified individual for our Compliance Examiner opening in Membership Application Program (MAP) of the Member Regulation Department in New York, NY.  To be considered for this position, please submit your resume through our careers site.    

Job Summary:  MAP Examiners review or investigate, in the context of new and continuing membership applications, risk areas of broker-dealers and allegations of wrong-doing or other non-compliant conduct to protect investors and ensure the integrity of the U.S. financial markets. This position requires excellent analytical and communication skills, consistently high productivity levels and work quality (frequently under tight deadlines), excellent collaboration skills, and a strong commitment to ensuring that the securities industry operates fairly and honestly.

For more information, https://finra.taleo.net/careersection/external/jobdetail.ftl?job=003238

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High Frequency Traders Subpoenaed

New York Attorney General Eric Schneiderman sent subpoenas to six high-frequencytrading firms seeking information about special arrangements they have with exchanges and dark pools as well as their trading strategies, according to a person familiar with the matter.

High-frequency trading (HFT) is a type of algorithmic trading, specifically the use of sophisticated technological tools and computer algorithms to rapidly trade securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. The concept is to use speed and position to capture trading profits of as little as a fraction of a cent on a trade.

Despite all of the recent publicity, HFT is not something new, or threatening. Back in 2009, studies suggested HFT firms accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012.

For more information, High-Frequency Traders Said to Be Subpoenaed in New York Inquiry 

Mark Cuban's Idiot's Guide to High Frequency Trading


The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions  We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.

Friday, April 18, 2014

Pyramid Scheme Targeting Immigrants Charged by SEC

The SEC has filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S. The charges were filed under seal, in connection with the Commission's request for an immediate asset freeze. That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets. After the SEC staff implemented the asset freeze, at the SEC's request the court lifted the seal today, permitting public announcement of the SEC's charges.
Seal of the U.S. Securities and Exchange Commi...

The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on "voice over Internet" (VoIP) technology but actually are operating an elaborate pyramid scheme. In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds.

According to the SEC's complaint, the defendants sold securities in the form of TelexFree "memberships" that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites. The SEC complaint alleges that TelexFree's VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters. As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing any real work...Even after the SEC and other regulators have alleged that such programs are a fraud, the promoters of TelexFree continued selling the false promise of easy money.
According to the SEC's complaint, the defendants have continued enrolling new investors but recently changed TelexFree's method of compensating promoters, requiring them to actually sell the VoIP product to qualify for payments that TelexFree had previously promised to pay them. The complaint also alleges that since December 2013, TelexFree has transferred $30 million or more of investor funds from TelexFree operating accounts to accounts controlled by TelexFree affiliates or the individual defendants.

In addition to the TelexFree firms, the complaint charges TelexFree co-owner James Merrill, of Ashland, Mass., TelexFree co-owner and treasurer Carlos Wanzeler, of Northborough, Mass., TelexFree CFO Joseph H. Craft, of Boonville, Ind., and TelexFree's international sales director, Steve Labriola, of Northbridge, Mass. The SEC also charged four individuals who were promoters of TelexFree's program: Sanderley Rodrigues de Vasconcelos, formerly of Revere, Mass., now of Davenport, Fla., Santiago De La Rosa, of Lynn, Mass., Randy N. Crosby, of Alpharetta, Ga., and Faith R. Sloan of Chicago. The SEC's complaint alleges that TelexFree, Inc., TelexFree, LLC, Merrill, Wanzeler, Craft, Labriola, Rodrigues de Vasconcelos, De La Rosa, Crosby, and Sloan violated the registration and antifraud provisions of U.S. securities laws and the SEC's antifraud rule. The SEC also charged three entities related to TelexFree as relief defendants based on their receipt of investor funds.

SEC Halts Pyramid Scheme Targeting Dominican and Brazilian Immigrants

SECLaw.com's Articles and Commentary Regarding Ponzi Schemes
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Former BP Employee Charged with Insider Trading During Oil spill

The Securities and Exchange Commission today charged a former 20-year employee of BP p.l.c. and a senior responder during the 2010 Deepwater Horizon oil spill with insider trading in BP securities based on confidential information about the magnitude of the disaster. The price of BP securities fell significantly after the April 20, 2010 explosion on the Deepwater Horizon rig, and the subsequent oil spill in the Gulf of Mexico, resulted in an extensive clean-up effort.
English: The mobile offshore drilling unit Q40...

According to the SEC's complaint, filed in U.S. District Court for the Eastern District of Louisiana, BP tasked Keith A. Seilhan with coordinating BP's oil collection and clean-up operations in the Gulf of Mexico and along the coast. Seilhan, an experienced crisis manager, directed BP's oil skimming operations and its efforts to contain the expansion of the oil spill. The complaint alleges that within days, Seilhan received nonpublic information on the extent of the evolving disaster, including oil flow estimates and data on the volume of oil floating on the surface of the Gulf.

Seilhan sold his family's BP securities after he received confidential information about the severity of the spill that the public didn't know.  Corporate insiders must not misuse the material nonpublic information they receive while responding to unique or disastrous corporate events, even where they stand to suffer losses as a consequence of those events.

The complaint alleges that by April 29, 2010, in filings to the SEC, BP estimated that the flow rate of the spill was up to 5,000 barrels of oil per day (bopd). The company's public estimate was significantly less than the actual flow rate, which was estimated later to be between 52,700 and 62,200 bopd. The information that Seilhan obtained indicated that the magnitude of the oil spill and thus, BP's potential liability and financial exposure, was likely to be greater than had been publicly disclosed.

According to the complaint, while in possession of this material, nonpublic information, and in breach of duties owed to BP and its shareholders, Seilhan directed the sale of his family's entire $1 million portfolio of BP securities over the course of two days in late April 2010. The trades allowed Seilhan to avoid losses and reap unjust profits as the price of BP securities dropped by approximately 48 percent after the sales on April 29 and April 30, 2010, reaching their lowest point in late June 2010.

Without admitting or denying the allegations, Seilhan consented to the entry of a final judgment permanently enjoining him from future violations of federal antifraud laws and SEC antifraud rules. Seilhan, of Tomball, Texas, also agreed to return $105,409 of allegedly ill-gotten gains, plus $13,300 of prejudgment interest, and pay a civil penalty of $105,409. The settlement is subject to court approval.

SEC Charges Former BP Employee with Insider Trading During the Deepwater Horizon Oil Spill

SECLaw.com's Insider Trading Articles and Commentary
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Does Liking a Brand Void Your Right to Sue?

The New York Times has an interesting article on a new twist on mandatory arbitration. General Mills has added language to its website that claims that consumers give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways. Instead, anyone who has received anything that could be construed as a benefit and who then has a dispute with the company over its products will have to use informal negotiation via email or go through arbitration to seek relief, according to the new terms posted on its site.

It is hard to imagine how General Mills thought this was going to be successful, and why it decided to risk the wrath of consumers with an unenforceable arbitration "agreement." A basic principle of arbitration law is that in order to force someone to arbitrate there needs to be a valid and binding agreement to do so. While there are any number of ways to create that agreement, or for the law to find that such an agreement exists, Mrs. Jone's purchase of a box of Betty Crocker cake mix is not one of the
m.
"Liking" their Facebook page won't ring the arbitration bell either.
The ADR Professor Blog has commentary on the clause, and has the full text of the arbitration clause at their site.

When ‘Liking’ a Brand Online Voids the Right to Sue 
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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including securities arbitration. Mark Astarita has represented parties in over 600 securities arbitrations, has litigated motions to compel arbitrations in the state and federal courts.  For more information contact Mark Astarita at 212-509-6544 or email us.

Undisclosed Kickbacks Lead to SEC Charges for Investment Advisor

The SEC's Enforcement Division alleges that Total Wealth Management and its owner and CEO Jacob Cooper entered into undisclosed revenue sharing agreements through which they paid themselves kickbacks or so-called "revenue sharing fees." They failed to disclose to clients the conflicts of interest created by these agreements as they recommended the underlying investments to clients and investors in the Altus family of funds. Total Wealth and Cooper also materially misrepresented the extent of the due diligence conducted on the investments they recommended. Total Wealth's CCO Nathan McNamee and investment adviser representative Douglas Shoemaker also breached their fiduciary duties and defrauded clients by failing to disclose conflicts of interest and concealing the kickbacks they received from the investments they recommended.

"Investment advisers owe a fiduciary duty of utmost good faith and full and fair disclosure to their clients," said Michele Wein Layne, director of the SEC's Los Angeles Regional Office. "Total Wealth violated that duty with its pervasive practice of placing clients in funds holding risky investments while concealing the revenue sharing fees they paid themselves."

In the order instituting administrative proceedings, the SEC's Enforcement Division alleges that Total Wealth and Cooper willfully violated the antifraud provisions of the federal securities laws, and McNamee and Shoemaker violated or aided and abetted violations of the antifraud provisions. They also are charged with violations of Form ADV disclosure rules and the custody rule. The SEC's order seeks return of allegedly ill-gotten gains plus interest, financial penalties, an accounting, and remedial relief.

SEC Charges San Diego-Based Investment Adviser

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Monday, April 7, 2014

SEC Announces Additional $150,000 Payment to Recipient of First Whistleblower Award

The SEC has announced that the whistleblower who received the first award under the agency's new whistleblower program will receive an additional $150,000 payout after the SEC collected additional funds in the case.

English: By Richard Wheeler (Zephyris) 2007.
The whistleblower, who the SEC did not identify in order to protect confidentiality, has now been awarded a total of nearly $200,000 since the award was announced on Aug. 21, 2012. The award recipient helped the SEC stop a multi-million dollar fraud by providing documents and other significant information that allowed its investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims.

The award represents 30 percent of the amount collected in the SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed under the law. The additional payout comes after the SEC collected an additional $500,000 from one of the defendants in the case.

"This latest payment shows that the SEC's aggressive collection efforts pay dividends not only for harmed investors but also for whistleblowers," said Sean McKessy, chief of the SEC's Whistleblower Office. "As we collect additional funds from securities law violators, we can increase the payouts to whistleblowers."

The SEC expects to collect additional money from defendants in this case as some are making payments under a periodic payment schedule ordered by the court.

The 2010 Dodd-Frank Act authorized the whistleblower program to reward individuals who offer high-quality original information that leads to an SEC enforcement action in which more than $1 million in sanctions is ordered. Awards can range from 10 percent to 30 percent of the money collected. The Dodd-Frank Act included enhanced anti-retaliation employment protections for whistleblowers and provisions to protect their identity. The law specifies that the SEC cannot disclose any information, including information the whistleblower provided to the SEC, which could reasonably be expected to directly or indirectly reveal a whistleblower's identity.

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The attorneys at Sallah Astarita & Cox, LLC represent all participants in the securities markets,including whistleblowers. For a free consultation call 212-509-6544.

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