Friday, May 30, 2014

Non-traded REITs’ Annualized Returns Were 4.82% Compared to Traded REITs’ 10.44%.

By Craig McCann

We have posted previously about how non-traded REITs which have had “liquidity events” have destroyed $27.7 billion in investor wealth compared to traded REITS.  The posts are available here. In this post, we calculate that the 27 non-traded REITs we discussed in prior posts have an internal rate of return (IRR) of 4.82%, which is 5.62 percentage points lower than the 10.44% IRR of a liquid, diversified REIT mutual fund over the same time period, with the same cash flows.

To calculate the IRR of the 27 non-traded REITs, we combine all of investors’ cash flows for the 27 non-traded REITs into a single stream of cash flows from June 1990 to October 2013. When one of the non-traded REITs has a liquidity event, we treat the market value of the REIT as a cash flow returned to investors. The IRR on the 27 non-traded REITs is 4.82%.
We applied the same non-traded REIT cash flow stream to a diversified, liquid portfolio of REITs (the VGSIX), and found that the VGSIX had an IRR of 10.44%.* In other words, investors in a liquid, diversified portfolio that exposes them to the same underlying real estate market as the non-traded REITs received 10.44% per year for the risk. In sum, even the winners amongst non-traded REITs have not compensated investors enough for the risks involved in investing in real estate.


* The VGSIX began on May 13, 1996. Prior to that, we use the NAREIT index, a non-tradable REIT index.

Friday, May 16, 2014

FINRA Enforcement Actions: Month in Review

APRIL 2014 SELECTED FINRA ENFORCEMENT ACTIONS

FIRMS FINED

The Huntington Investment Company (CRD #16986, Columbus, Ohio)


The Huntington Investment Company consented to a $25,000 fine and censure. The firm consented to an entry of "findings that it failed to provide notice to the MSRB via the Electronic Municipal Market Access System (EMMA) that no preliminary official statements or official statements were to be prepared for bond anticipation note offerings in which the firm participated." Furthermore, it was found that the firm allegedly "engaged in advance refund offerings, and failed to file advance refunding documents with the MSRB via EMMA in each of the three advance refunding offerings in which the firm participated as the sole or senior underwriter." Finally, the firm was also found to allegedly fail "to disclose four political contributions by a non-municipal finance professional (MFP) executive at the firm had made."

Stifel, Nicolaus & Company, Incorporated (CRD #793, St. Louis, Missouri)

Stifel, Nicolaus & Company, Inc consented to a $22,500 fine and censure. The firm consented to an entry of "findings that it effected transactions in securities while a trading halt was in effect with respect to each of the securities."

Tejas Securities Group, Inc. (CRD #36705, Austin, Texas)

Tejas Securities Group, Inc consented to a $73,000 fine, censure, and order to pay $22,333 plus interest in restitution to customers. The firm consented to an entry of findings that "it sold (bought) corporate bonds to (from) customers and failed to sell (buy) such bonds at a price that was fair." The firm also allegedly "failed to report transactions in TRACE-eligible securities to TRACE within 15 minutes of the time of execution, failed to report the correct trade execution time for transactions in TRACE-eligible securities, and failed to show the correct execution time on memoranda of brokerage orders."

FINRA Fines Brown Brothers Harriman a Record $8 Million for Substantial Anti-Money Laundering Compliance Failures

FINRA fined Brown Brothers Harriman & Co "$8 million for substantial anti-money laundering compliance failures including, among other related violations, its failure to have an adequate anti-money laundering program in place to monitor and detect suspicious penny stock transactions." According to FINRA's complaint, "BBH executed transactions or delivered securities involving at least six billion shares of penny stocks, many on behalf of undisclosed customers of foreign banks in known bank secrecy havens" despite the fact that "it was unable to obtain information essential to verify that the stocks were free trading." Additionally, FINRA found that "although BBH was aware that customers were depositing and selling large blocks of penny stocks, it failed to ensure that its supervisory reviews were adequate to determine whether the securities were part of an illegal unregistered distribution." BBH and BBH's former Global AML Compliance Officer Harold Crawford " neither admitted nor denied the charges, but consented to the entry of FINRA’s findings."

FINRA Fines Berthel Fisher and Affiliate, Securities Management & Research, $775,000 for Supervisory Failures Related to Sales of Non-Traded REITs and Leveraged and Inverse ETFs

FINRA fined Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc., "a combined $775,000 for supervisory deficiencies, including Berthel Fisher’s failure to supervise the sale of non-traded real estate investment trusts, and leveraged and inverse exchange-traded funds." According to FINRA's Executive Vice President of Enforcement, Brad Bennett, "“Berthel’s supervision of the sales of non-traded REITs, inverse ETFs and other products fell short..., as it failed to ensure that its registered representatives understood the unique features and risks of these products before presenting them to retail clients." FINRA found that " from April 2009 to April 2012, Berthel Fisher did not have a reasonable basis for certain sales of leveraged and inverse ETF" and the firm had not "adequately research[ed] or review[ed] non-traditional ETFs before allowing its registered representatives to recommend them to customers, and failed to provide training to its sales force regarding these products." Berthel Fisher and Securities Management & Research "neither admitted nor denied the charges, but consented to the entry of FINRA's findings."

INDIVIDUALS BARRED

Richard Hans Bach (CRD #1011097, Registered Principal, Mohawk, New York)

Richard Hans Bach has been barred from association with any FINRA member in any capacity for allegedly causing "his member firm to violate the Net Capital Rule by conducting a securities business while it had insufficient net capital."

Stefani Ann Bennett (CRD #5890347, Registered Representative, Salmon, Idaho) 

Stefani Ann Bennett has been barred from association with any FINRA member in any capacity for allegedly withdrawing $100,000 "in cashier’s checks and cash from [her] customer’s estate checking account at her member firm’s sister bank affiliate" and then converting "the $100,000 for her own use and benefit."

William Bradford Coolidge (CRD #1636957, Registered Representative, Cordova, Tennessee)

William Bradford Coolidge "submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity" for allegedly effecting " trades in elderly customers’ accounts without obtaining the customers’ prior written authorization and without his member firm’s acceptance of the accounts as discretionary." It was found that "[g]iven the customers’ age, investment objectives, and risk profile or annual income, Coolidge’s recommendations were not suitable and were inconsistent with their account objectives" and the customers ultimately incurred losses of almost $200,000.

Florlena Cortez (CRD #4339441, Registered Principal, El Paso, Texas)

Florlena Cortez has been barred from association with any FINRA member in any capacity  for allegedly "participat[ing] in private securities transactions by soliciting customers to invest in securities that were outside the regular course and scope of her association with her member firm."

Harold Lavern DePrill Jr. (CRD #1302318, Registered Principal, Johns Island, South Carolina) 

Harold Laverb DePrill Jr. has been barred from association with any FINRA member in any capacity for failing to appear "for FINRA-requested testimony."

Richard David Jameison Jr. (CRD #2567029, Registered Principal, Devon, Pennsylvania)

Richard David Jameison Jr. has been barred from associating with any FINRA member in any capacity for allegedly converting "$150,000 from an acquaintance who was not his member firm’s customer." While Jameison told the acquaintance that he would invest the funds in an enterprise, in reality "Jameison never invested any of the investor’s funds and converted the bulk of the funds for his own use and benefit." When the acquaintance asked for the funds to be returned, Jameison wrote checks drawn against accounts "that he maintained with his wife." The accounts contained insufficient funds, so the checks were dishonored. "Jameison’s firm terminated his employment, and the acquaintance and his wife filed a lawsuit against Jameison. Jameison paid the acquaintance and his wife $165,000."

Gregg N. Nussbaum (CRD #2020751, Registered Representative, Deerfield, Florida)

Gregg N. Nussbaum has been barred from associating with any FINRA member in any capacity for "intentionally exceeded his trading authority" as a "a proprietary trader for his member firm."

Richard Martin Ohlhaber (CRD #2154794, Registered Principal, Keller, Texas)

Richard Martin Ohlhaber has submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity for participating "in the sale of life settlement contracts offered by a company...without providing written notice of his involvement in the sales of the life settlement contracts to either of his FINRA member firms, and never obtain[ing] either firm’s permission to engage in such outside business activity."

Allen Hugo Reichman (CRD #1002285, Registered Representative, Irvington, New York)

Allen Hugo Reichman has submitted a Letter of Acceptance, Waiver and Consent in which he has been barred from association with any FINRA member in any capacity for failing "to appear for FINRA-requested testimony."

Timothy Burke Ruggiero (CRD #2119642, Registered Principal, Plantation, Florida)

Timothy Burke Ruggiero has been barred from associating with any FINRA member in any capacity for allegedly engaging in "intentional stock price manipulation" and for failing to prevent the manipulation" in his roles as his "member firm’s President and Chief Executive Officer."

Mark Raymond Talley (CRD #4969783, Registered Representative, Ft. Mitchell, Kentucky)

Mark Raymond Talley has been barred from associating with any FINRA member in any capacity for allegedly giving a customer false information when "recommend[ing] that his customer replace an existing variable annuity with a new variable annuity."

Robert Durant Tucker (CRD #1725356, Registered Representative, New York, New York)

Robert Durant Tucker has been barred from associating with any FINRA member in any capacity because he allegedly "approved the transfer of customer funds to his personal checking account by falsifying a wire transfer form to give the appearance that he was a manager at his firm, and then converted those funds for his personal use."

Linda Whitmore (CRD #2855540, Associated Person, Brown Deer, Wisconsin)

Linda Whitmore has been barred from associating with any FINRA member in any capacity because she and her manager allegedly "manipulated their member firm’s payroll system and caused payments to be made to them to which they were not entitled."

Pamela Anne Wooten (CRD #1313028, Registered Principal, Beaufort, South Carolina)

Pamela Anne Wooten has been barred from associating with any FINRA member in any capacity for allegedly failing "to appear for investigative on-the-record testimony to obtain information concerning certain transactions she executed between her member firm and one of its customers."

Michael Anthony Zolondek (CRD #2513409, Registered Principal, Mauston, Wisconsin) 

Michael Anthony Zolondek has been barred from associating with any FINRA member in any capacity for allegedly assisting employees and contractors to cheat on Life Underwriting Training Council courses that he moderated.

John Joseph Misulia (CRD #5330650, Associated Person, New York, New York) 

John Joseph Misulia has been barred from associating with any FINRA member in any capacity for converting a "total of $5,683.31 from his member firm when he charged personal expenses on a corporate credit card the firm had issued him."

COMPLAINTS FILED

NSM Securities, Inc. (CRD #134357, West Palm Beach, Florida), Niyukt Raghu Bhasin (CRD #2282048, Registered Principal, Wellington, Florida), Shondeep Sajan Balchandani (CRD #5165930, Registered Representative, West Palm Beach, Florida) and Naveen K. Bhagwani (CRD #5423037, Registered Representative, West Palm Beach, Florida)

NSM Securities, Inc. , Niyukt Raghu Bhasin, Shondeep Sajan Balchandani and Naveen K. Bhagwani were named respondents in a FINRA complaint "alleging that the firm, acting through and at the direction of its founder, owner, President, and CEO Bhasin, derived most of its revenue from actively and aggressively trading stocks in the commission-based accounts of its retail customers." According to the complaint, "Bhasin prioritized his firm’s profits over the duties owed to its customers and chose not to establish a supervisory system tailored to the firm’s business." As a result of the "grossly inadequate supervisory system Bhasin established, many firm customers suffered significant losses."


FINRA's April 2014 enforcement actions in full are available here (PDF). 

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Unregistered Securities Salesman for Selling Millions of Dollars in Oil-And-Gas Investments
, May 15, 2014, (Litigation Release No. 22993)

According to the complaint (PDF), Behrooz Sarafraz "acted as the primary salesman on behalf of TVC Opus I Drilling Program LP and Tri-Valley Corporation" and received over $16 million in sales commissions while failing to be registered with the SEC as a broker-dealer. Sarafraz has agreed to a final judgment that enjoins him from future violations of the securities laws, and has agreed to pay over $22 million in disgorgement, prejudgment interest, and penalties.

Criminal Charges Filed Against Two Principals of Massachusetts-Based Telexfree, May 13, 2014, (Litigation Release No. 22992)

Criminal charges have been entered against James M. Merrill and Carlos N. Wanzeler charging them with "conspiracy to commit wire fraud in connection with the alleged TelexFree pyramid scheme previously charged by the Securities and Exchange Commission." The criminal charges arise from an SEC action that alleges "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."

SEC Charges Three Sales Managers with Insider Trading Ahead of Major Acquisition, May 13, 2014, (Litigation Release No. 22991)

According to the complaint (PDF), three former Qualcomm Inc. sales managers, Derek Cohen, Robert Herman, and Michael Fleischli, have been charged with insider trading ahead of the announcement of an acquisition of Atheros Communications. The defendants made over $230,000 in illegal profits. The SEC charges the defendants with violating the Exchange Act and seeks disgorgement, prejudgment interest, financial penalties, and permanent injunctions.

Criminal charges have been announced against Cohen and Herman in a parallel action.

SEC Charges Texas Resident and Company in $10 Million Oil and Gas Fraud Scheme, May 13, 2014, (Litigation Release No. 22990)

According to the complaint (PDF), from September 2010 through January 2012 Charles O. Couch and his company Couch Oil & Gas, Inc. "fraudulently raised approximately $9,800,000 from more than 200 investors in two unregistered offerings of oil and gas securities." The defendants allegedly claimed "investors would receive working interests in oil and gas wells when, in fact, Couch and Couch Oil & Gas retained those working interests and never transferred them to investors." The SEC seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties.

Three Software Company Founders to Pay $5.8 Million to Settle Charges of Insider Trading Ahead of Sale, May 12, 2014, (Litigation Release No. 22989)

According to the complaint (PDF), Lawson Software's "co-chairman Herbert Richard Lawson tipped his brother William Lawson and family friend John Cerullo with nonpublic information about the status of the company’s 2011 merger discussions with Infor Global Solutions." William Lawson and John Cerullo then traded on this information  and William Lawson tipped another trader to sell shares. In total, the traders made over $2 million in illicit profits. The defendants have agreed to final judgments that enjoin them from future violations of the securities laws, impose an officer and director bar against Richard Lawson, and order them to pay over $5.7 million in disgorgement, prejudgment interest, and penalties.

CFTC ENFORCEMENT ACTIONS

CFTC Charges Florida-Based Palm Beach Capital LLC and Lawrence Scott Spain with Engaging in Illegal, Off-Exchange Precious Metals Transactions
, May 15, 2014, (CFTC Press Release No. 6931-14)

According to the complaint (PDF), Palm Beach Capital LLC and its owner and manager, Lawrence Scott Spain, engaged "in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis." The CFTC seeks disgorgement, restitution, civil penalties, permanent registration and trading bans, and a permanent injunction from future violations against the defendants.

The complaint also alleges that "PBC executed the illegal precious metals transactions through Lloyds Commodities, LLC and associated entities...and Hunter Wise, LLC and associated entities." The CFTC filed enforcement actions against these entities in December 2012. In February 2014, Lloyds Commodities was ordered to pay over "$5 million in restitution and penalties." As for Hunter Wise, "a bench trial against [it] on remaining charges, which allege fraud, was concluded on March 3, 2014, and the parties are awaiting the court’s final judgment."

CFTC Charges RP Martin Holdings Limited and Its Subsidiary, Martin Brokers (UK) Limited, with Manipulation and Attempted Manipulation of Yen Libor, May 15, 2014, (CFTC Press Release No. 6930-14)

The CFTC issued an Order (PDF) against RP Martin Holdings Limited, and its subsidiary, Martin Brokers (UK) Limited, "filing and settling charges of manipulation, attempted manipulation, false reporting, and aiding and abetting derivatives traders’ acts of manipulation and attempted manipulation of the London Interbank Offered Rate (LIBOR) for Yen." The CFTC Order requires RP Martin to "pay a $1.2 million civil monetary penalty...[and] to take specified steps to ensure the integrity and reliability of benchmark interest rate-related market information disseminated by RP Martin."

In a related matter, "the United Kingdom Financial Conduct Authority issued a Final Notice regarding its enforcement action against Martin Brokers (UK) Limited and imposed a penalty of £630,000, the equivalent of approximately $1 million."

Friday, May 9, 2014

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Three Friends and Business Associates of Former Chairman of Home Diagnostics, Inc., in Insider Trading Scheme
, May 7, 2014, (Litigation Release No. 22987)

John Campani, John Mullin, and Alan Posner have all been charged with trading on insider information concerning Nipro Corporation's acquisition of Home Diagnostics, Inc for combined profits of "more than $105,000." The defendants were allegedly tipped this information by former Chairman of the Board at Home Diagnostics, George H. Holley. Holley and other tippees were previously charged by the SEC in the case SEC v. George H. Holley, et al. The SEC has charged the defendants with violating the Exchange Act. The defendants have consented to a final judgment that permanently enjoins them from future violations, and orders them to pay over $166,000 combined in prejudgment interest, disgorgement, and civil penalties.

SEC Charges Toronto-Based Consultant and Four Others with Multiple Chinese Reverse Merger Schemes, May 7, 2014, (Litigation Release No. 22986)

According to the complaint (PDF), S. Paul Kelly, George Tazbaz, Roger D. Lockhart, Robert S. Agriogianis, and Shawn A. Becker were involved in a scheme to take China Auto Logistics, Inc. and Guanwei Recycling Corp "public through reverse mergers with U.S. public shell companies, hide their control over the companies' stock through a vast network of U.S. and international entities, sell that stock in unregistered distributions, and manipulate trading in the stock, ultimately obtaining millions in profits as a result." The SEC has charged the defendants with violating various provisions of the securities laws and seeks permanent injunctions, disgorgement, civil penalties, and other relief. Kelley, Lockhart, and Agriogianis consented to a final judgment that enjoins them from future violations, orders Kelley and Lockhart to pay over $6.5 million in disgorgement, prejudgment interest, and penalties, and imposes penny stock bars against Lockhart and Agriogianis. "The amount of disgorgement and civil penalties to be assessed against Agriogianis will be determined by the court at a later time." The claims against Tazbaz and Becker "will be determined after a trial, which has not been set."

SEC Charges Ohio-Based Investment Adviser and President for Fraudulently Hiding Account Shortfall, May 5, 2014, (Litigation Release No. 22985)

The SEC has charged investment advisor "Professional Investment Management, Inc...and its president, Douglas E. Cowgill...for repeatedly hiding a shortfall of more than $700,000 in client assets." The complaint charges PIM and Cowgill with violating various provisions of the Exchange Act and Investment Advisers Act. "A hearing on the SEC's motion for a preliminary injunction has been scheduled for May 12."

SEC Charges Florida Lawyer in Connection with Multi-Million Dollar Prime Bank Scheme, May 5, 2014, (Litigation Release No. 22984)

Attorney Allen Ross Smith has been charged with "violating the anti-fraud and securities offering provisions of the federal securities laws for his role in an advance fee investment scheme" orchestrated by  Malom Group AG, which "involv[ed] prime bank transactions and overseas debt instruments." According to the SEC, Smith used his position as an attorney to make "several false and misleading statements to investors." The SEC has charged Smith with violating the Securities Act and Exchange Act and seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties.


CFTC ENFORCEMENT ACTIONS

CFTC Amends Complaint against Banc de Binary, Ltd. to Charge Three Affiliated Corporate Entities with Violating the CFTC’s Ban on Trading Options Contracts Off-Exchange
, May 2, 2014, (CFTC Press Release No. 6923-14)

According to the amended complaint (PDF), Banc de Binary, Ltd. and its three corporate affiliates, E.T. Binary Options Ltd., BO Systems Ltd., and BDB Services Ltd., "violat[ed] the CFTC’s ban on off-exchange options trading by offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting orders and funds, or confirming the execution of orders, from U.S. customers." The amended complaint finds Oren Shabat Laurent liable "for the corporate Defendants’ alleged violations of the Commodity Exchange Act and the CFTC’s Regulations."  The CTFC seeks civil penalties, restitution, disgorgement, rescission, and "a permanent injunction preventing the Defendants from engaging in certain commodity options activity with U.S. customers."


How is NYRT Doing?

By Craig McCann

We’ve posted extensively about the evils of non-traded REITs. You can find those previous posts here. Two weeks ago we posted the summary results of our investigation into the performance of 27 non-traded REITs which had had a liquidity event by December 31, 2013. We found that investors are $27.7 billion worse as a result of investing in these 27 REITs rather than investing in a diversified portfolio of traded REITs. That post is available here.

In our April 17, 2014 post, “NYRT’s Listing is More Evidence That Even the Non-Traded REITs Winners Are Losers” we pointed out that American Realty Capital New York Recovery REIT, Inc., which became a listed REIT renamed New York REIT (Ticker: NYRT) on April 15, 2014, had lost its investors about $100 million by the end of its third day of trading as compared to a traded REIT that similarly concentrated its portfolio in Manhattan real estate. The NYRT post is available here.

In the NYRT post, we said “We think the relative performance of NYRT relative to SLG is going to get worse.” We are so skeptical of what passes for market wisdom that we never make predictions but this one seemed like a safe bet. It’s only been a few weeks but let’s see how that prediction is doing.

In Figure 1, we plot the value of investors’ net investment in NYRT while it was a non-traded REIT once it became a traded REIT in red and the value of the same net investments had they been made in SLG, the traded REIT which concentrates in Manhattan real estate.

At the close on April 17, 2014 investors’ net investment in NYRT was worth approximately $1.82 billion and the same amounts invested at the same time in SLG would have been worth $1.92 billion. Thus, we pointed out that investors were about $100 million worse off as a result of investing the non-traded REIT.

Between the close on April 17, 2014 and May 8, 2014, NYRT’s price has dropped from $10.62 to $10.52 offset in part by a 3.8 cent dividend paid on May 6, 2014. The non-traded investors’ net investment is now worth $1.81 billion.

Over the same three weeks, SLG’s price has increased 6.3% from $101.49 to $107.89. The non-traded investors’ net investment if they had been made in the traded REIT instead of the non-traded REIT would now be worth $2.04 billion.

Thus, the non-traded REIT investors, assuming they stayed in NYRT, are now $230 million worse off than if they had invested in the traded REIT, SLG.

Friday, May 2, 2014

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Barry R. Bekkedam with Defrauding Investment Advisory Clients in Connection with Multimillion Dollar Rothstein Ponzi Scheme
, April 30, 2014, (Litigation Release No. 22983)

According to the complaint (PDF), Barry R. Bekkedam, former SEC-registered investment advisor and former owner, Chairman, and Chief Executive Officer of Ballamor Capital Management, LLC, "fraudulently induced, or assisted in inducing, his advisory clients and others to invest approximately $100 million in a fund that purportedly purchased lawsuit settlements from now-convicted Ponzi-schemer Scott Rothstein." In 2009, Bekkedam met George Levin, "who was himself a Rothstein investor and had been raising capital from investors to purchase settlements from Rothstein since 2007." In April 2009, they "formed a private fund called Banyon Income Fund, LP to enable Bekkedam to raise funds from clients and others to be invested exclusively in Rothstein’s settlements." While the scheme lasted, "Levin and Bekkedam engaged in a series of transactions designed to funnel money to Bekkedam and his related entities in exchange for Bekkedam’s solicitation of investors in the Fund." The complaint finds that Bekkedam violated various provisions of the securities laws and seeks a final judgment, disgorgement, prejudgment interest, and a civil penalty against him.

SEC Charges Utah-Based Retirement Plan Administrator with Defrauding Investors, April 30, 2014, (Litigation Release No. 22982)

The SEC obtained an asset freeze and an appointment of a receiver against American Pension Services, Inc., a retirement plan administrator that has been charged along with its Founder, President and CEO, Curtis L. DeYoung, with "defraud[ing] investors in self-directed Individual Retirement Accounts, causing them to lose millions of dollars of savings." The SEC has charged the defendants with violating various provisions of the securities laws and seeks a permanent injunction, disgorgement, prejudgment interest, and a civil penalty.

SEC Charges Individuals with Insider Trading in Stock of E-Commerce Company Prior to Acquisition by Ebay, April 29, 2014, (Litigation Release No. 22981)

Last week, the SEC charged Christopher Saridakis and Jules Gardner with insider trading in advance of eBay’s acquisition of GSI Commerce, Inc. Gardner allegedly " violated a duty of trust as CEO of the marketing solutions division of GSI Commerce by illegally tipping family members and two friends, including Jules Gardner, about the acquisition of GSI." The defendants have agreed to judgments that permanently enjoin them from future violations of the Securities Exchange Act and impose an officer and director bar against Saridakis. The defendants have also been ordered to pay over $920,000 in disgorgement, prejudgment interest, and penalties combined. Criminal charges have been announced against Saridakis.

The SEC's investigation remains ongoing.

SEC Files Action Against Broker-Dealer to Enforce Compliance with Order to Pay Civil Penalty, April 28, 2014, (Litigation Release No. 22980)

This week, the SEC announced "that it filed an application...against Charles Vista, LLC alleging that it violated an SEC Order requiring it to pay civil penalties of $4,350,000. " In November 2013, the SEC found that Charles Vista, LLC had "violated the antifraud provisions of the federal securities laws by reason of false and misleading statements made by Gregg Lorenzo and Frank Lorenzo (not related) to induce investors to purchase certain debentures." The SEC's order directed the defendants to cease and desist from "committing or causing any violations or future violations" of the securities laws and, among other things, ordered Charles Vista, LLC, to pay a civil penalty of $4,350,000. "No portion of this civil penalty has been paid." The SEC seeks a court order to enforce the payment of this civil penalty.

SEC Charges Texas Resident and His Companies for Selling Fraudulent Oil and Gas Investments, April 28, 2014, (Litigation Release No. 22979)

Last week, the SEC filed "civil securities fraud charges against Guardian Oil & Gas, Inc., Guardian Oil & Natural Gas, Inc. and their principal, Rick D. Mullins. The charges stem from an alleged oil and gas offering fraud." According to the SEC, "the defendants failed to disclose to investors Guardian's deteriorating financial condition, including significant amounts owed on pre-existing bank loans" and furthermore, "falsely represented to investors that their contributions would be used solely for the specific drilling project in which they had invested but instead, under Mullins's direction, Guardian and GONG redirected investor funds for other unrelated purposes." The SEC has charged the defendants with violating various provisions of the securities laws and seeks permanent injunctions, disgorgement, and prejudgment interest as well as civil penalties against Mullins.

SEC Charges Las Vegas Resident and His Company with Securities and Broker-Dealer Registration Violations in Connection with Multi-Million Dollar Prime Bank Schemes, April 28, 2014, (Litigation Release No. 22978)

According to the complaint (PDF), James Lee Erwin and his company, Joint Venture Solutions, Inc., violated "the securities offering and broker-dealer registration provisions of the federal securities laws" by promoting investments in "Malom Group AG of Switzerland, a company...that is behind a pair of advance fee schemes guaranteeing astronomical returns to investors in purported prime bank transactions and overseas debt instruments." The SEC alleges that "the investors [the defendants] recruited lost all of their invested funds." The complaint charges the defendants with violating provisions of the securities laws and seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties. Previously, the SEC charged "Malom Group AG, its principals, and agents with violating the antifraud and securities registration provisions of the federal securities laws in SEC v. Malom Group AG, et al."

CFTC ENFORCEMENT ACTIONS

Federal Court Freezes Assets of EJS Capital Management, LLC, Alex Vladimir Ekdeshman and Edward J. Servider and Relief Defendants in CFTC Action Charging Misappropriation of Nearly $2 Million in Ongoing Forex Fraud Scheme
, May 2, 2014, (CFTC Press Release No. 6919-14)

According to the complaint (PDF), EJS Capital Management, LLC, Alex Vladimir Ekdeshman, and Edward J. Servider fraudulently solicited over "$2 million, misappropriat[ed]...most of those funds, issu[ed] false account statements," and had "registration violations in an ongoing retail foreign currency fraud scheme." A restraining order has been entered against the defendants as well as relief defendants Alisa Ekdeshman (Ekdeshman’s wife), Executive Services of Florida LLC, Executive Management Services of Montana Inc., and Michael Vilner. The CFTC seeks disgorgement, restitution for the defrauded EJS customers, civil penalties, permanent registration and trading bans, and a permanent injunction from future violations of the commodities laws. A hearing date has been set for May 12, 2014.

Criminal charges have been filed against Ekdeshman charging him with "one count each of commodities fraud, mail fraud, and wire fraud."

Federal Court Orders James C. Yadgir of Palatine, Illinois to Pay $130,000 Penalty for Violating Speculative Position Limits for Cattle Futures, April 29, 2014, (CFTC Press Release No. 6917-14)

A final judgment and consent Order (PDF) has been filed against James C. Yadgir, "who has been registered with the CFTC as floor trader since 1993 and as floor broker since 2007." The Order settles charges that "Yadgir exceeded speculative position limits in live cattle futures contracts on one day and feeder cattle futures contracts on two other days" and "requires Yadgir to pay a civil monetary penalty of $130,000" as well as "permanently prohibits him from violating speculative position limits of a registered entity, which have been either approved by the CFTC or certified by a registered entity."

Federal Court Orders Illinois CPA Michael Tunney and His Accounting Firm, Tunney & Associates, P.C., to Pay a $100,000 Penalty for Improper Audits of a Commodity Futures Firm, April 28, 2014, (CFTC Press Release No. 6916-14)

The CFTC obtained a federal court Consent Order (PDF) "against Tunney & Associates, P.C...and Michael Tunney, its sole owner and a certified public accountant" requiring them "to pay a $100,000 civil monetary penalty for violating CFTC Regulations when conducting audits for The Linn Group, a CFTC-registered Futures Commission Merchant."

CFTC Obtains a Permanent Injunction against Australian Firm Halifax Investment Services, Ltd., Charged with Acting as an Unregistered Retail Foreign Exchange Dealer, April 25, 2014, (CFTC Press Release No. 6914-14)

Consent Order of Permanent Injunction (PDF) was entered against Halifax Investment Services, Ltd. The Order bars Halifax from "soliciting orders to trade foreign currency from United States residents who do not qualify as eligible contract participants and from offering to be the counterparty to United States residents’ forex transactions without registering with the CFTC." The Order also "requires Halifax to publish a notice on its website stating that Halifax does not provide services for United States residents" as well as settles "CFTC charges that Halifax unlawfully solicited members of the public to engage in forex transactions and operated as a Retail Foreign Exchange Dealer without being registered with the CFTC."