Recent enforcement actions included charges by the SEC in a stock-lending scheme and an astrology-based Ponzi scheme, the recovery of funds for 401(k) accounts from an electrical contractor by the Department of Labor and numerous FINRA actions on everything from short sales to data breaches in client accounts.
Gurudeo “Buddy” Persaud, a former broker in Orlando, Fla., was charged by the SEC with defrauding investors in an astrology-based Ponzi scheme. The agency seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Persaud to enjoin him from future violations of the federal securities laws.
In one of the more colorful schemes, Persaud is alleged to have relied on an Internet service that provided directional market forecasts based on lunar cycles and gravitational pull for an investment strategy that was premised on the idea that gravitational forces affect mass human behavior, and in turn, the stock market. For example, Persaud believed that when the moon exerts greater gravitational pull on the Earth, people feel dejected and are more inclined to sell securities.
With this as his strategy, Persaud is alleged to have lured family, friends and others into investing in his firm, White Elephant Trading Co. LLC, by falsely guaranteeing their money would be safe and yield substantial returns ranging from 6–18%. Persaud told investors he would invest in the debt, stock, futures and real estate markets, but did not reveal that his trading strategy was based on his belief that markets are affected by gravitational forces.
According to the SEC’s complaint filed in U.S. District Court for the Middle District of Florida, Persaud used investors’ money to make payments to other investors, lost $400,000 of investor funds through his trading and diverted at least $415,000 to pay for his personal expenses. The same month Persaud began receiving investor money, he started using some of that money for his personal expenses. The SEC said that Persaud created phony account statements to hide his trading losses and give investors a false sense of security.
Persaud was a registered representative at a Florida-based broker-dealer but separately operated the now-inactive White Elephant, starting in mid-2007. In all, he raised more than $1 million from at least 14 investors between July 2007 and January 2010.
Sales of Loaned Stocks
Without admitting or denying the allegations, Manuel M. Bello, owner of Ayuda Equity Funding LLC and AmeriFund Capital Holdings LLC, both in North Butler, N.J., agreed to pay a $500,000 penalty and be permanently barred from the securities industry, and his firms agreed to return $3.2 million in allegedly ill-gotten gains after charges by the SEC that Bello ran a stock-lending scheme that defrauded public company officials and brought restricted stock to the market. The SEC’s complaint alleged that Ayuda and AmeriFund reaped more than $3.2 million of illegal gains on loans to public company officers and directors who put up stock as collateral. Although some borrowers received written and oral assurances that the stock would not be sold as long as they did not default on their loan payments, Ayuda and AmeriFund sold the shares before or soon after making the loans, the SEC alleged.
The SEC also alleged that in at least 35 loan transactions, Ayuda and AmeriFund sold the borrowers’ restricted shares into the market without registering the transactions, and the firms and Bello failed to register with the SEC as brokers or dealers. The settlement is subject to court approval.
In a separate administrative proceeding, the SEC charged Howard L. Blum, alleging that he brokered numerous transactions for Ayuda without being registered as a broker or dealer. Blum, without admitting or denying the SEC’s findings, agreed to return more than $1 million of allegedly ill-gotten gains, plus interest; pay a $50,000 penalty; and be suspended from the securities industry for 12 months.
Journey Electrical CEO to Restore Misdirected 401(k) Funds
The Department of Labor reached an agreement with the former president and CEO of Aliso Viejo, California-based Journey Electrical Technologies Inc., a defunct electrical contractor, to restore $570,983 to the company’s 401(k) plan. In a partial consent judgment and order, Mark Dell Donne of San Clemente has agreed to restore $472,235 to the plan. Dell Donne, who served as a fiduciary of the plan, already has restored $98,748 to the plan’s accounts.
Labor had brought a lawsuit in the wake of an investigation by its Employee Benefits Security Administration, which determined that, between January 2004 and March 2008, some of Journey’s employees’ wages for work they performed on public works projects were deposited in the company’s general funds instead of the workers’ 401(k) plan accounts as required under the government contracts.
Also, in violation of the Employee Retirement Income Security Act (ERISA), employee elective 401(k) contributions and participant loan payments also were not forwarded for deposit into plan accounts. According to the most recent information available, the plan had 105 participants and a balance of more than $1.9 million as of Dec. 31, 2010.