More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
The Securities and Exchange Commission, the U.S. Attorney for the District of Massachusetts, and the Federal Bureau of Investigation announced charges against five individuals Friday whose attempt to manipulate shares of Boston-based Amogear Inc. was caught by an FBI undercover operation.
According to the SEC and criminal cases filed in federal court in Boston, the defendants knew that Amogear was a shell company without any real operations, but schemed to boost its price and profit by selling their own shares.
“What the parties didn’t know was that the FBI controlled Amogear and used it to obtain evidence of attempted stock manipulation," the SEC said in a statement. "To protect investors, the SEC suspended trading in Amogear’s securities on Feb. 10, as the attempted stock manipulation was underway.”
According to the SEC, the charges follow a series of cases since December 2011 in which the SEC suspended trading in seven companies and criminal authorities charged 22 individuals with using kickbacks and other schemes to trigger investments in microcap stocks, convicting 18 to date.
Small “microcap” companies often trade for pennies per share, and many do not file financial reports with the SEC. "The fact that investors often cannot find accurate information about microcap companies can make the microcap stock market a fertile ground for fraud and abuse," the SEC said.
“This case is an outstanding example of law enforcement creativity and cooperation trumping microcap fraudsters,” Andrew Ceresney, director of the SEC’s Enforcement Division, said in a statement. “By obtaining control of a shell company, using it to collect evidence of a manipulation scheme, and suspending trading before the scheme succeeded, we have protected investors from harm.”
“These defendants brazenly attempted to manipulate Amogear’s stock,” added Paul Levenson, director of the SEC’s Boston Regional Office, in the statement. “It didn’t occur to them that the FBI and SEC were a step ahead of them.”
Vince Lisi, special agent in charge of the FBI’s Boston Division, added that “fund representatives, CEOs, traders, fund managers, equities analysts, lawyers and publicists should take note that Boston FBI agents purposefully designed multiple undercover operations aimed directly at rooting out market manipulation and insider trading. As the scope and design of our undercover operations become well-known, no one should think that future undercover operations will be the same as prior ones because in this instance the FBI took control of a publicly traded company making it nearly impossible to discover.”
The SEC announced that the following individuals were charged today by the SEC with securities fraud and were recently charged by the U.S. Attorney on the following criminal charges:
- Andrew J. Affa, 30, of Huntington Station, New York, conspiracy to commit securities fraud and wire fraud
- Michael A. Affa, 34, of Toms River, New Jersey, conspiracy to commit securities fraud and wire fraud
- Mitchell H. Brown, 48, of Long Branch, New Jersey, conspiracy to commit securities fraud and wire fraud
- Christopher R. Putnam, 37, of Charleston, South Carolina, conspiracy to commit securities fraud
- Christopher G. Nix, 34, of Charleston, South Carolina, conspiracy to commit securities fraud
The SEC is seeking permanent injunctions against further violations of the securities laws, return of allegedly ill-gotten gains with interest, civil monetary penalties, and to bar the defendants from being involved in penny-stock offerings.
Check out SEC Enforcement: Missouri Firm Slapped for Fiduciary Duty Breach on ThinkAdvisor.