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June 13, 2013 at 08:58 AM
Among recent enforcement actions taken by the Department of Labor and the SEC were lawsuits to recover lost funds mishandled by pension plan administrators, charges against a Cyprus-based company over illegal binary options, and charges against a wealth management company and former fund manager for insider trading.
Also, top officials at a Detroit investment advisor were charged with stealing funds from a police officers’ and firefighters’ pension fund, and additional charges were filed in the case of a Venezuelan bank kickback scheme.
Execs Charged With Raiding Detroit Police, Firefighter Pension to Buy Strip Malls
Chauncey Mayfield, the founder, president and CEO of MayfieldGentry Realty Advisors in Detroit, was charged by the SEC, along with four top executives at the firm, in the theft of money from the pension fund managed by the firm for the city’s police officers and firefighters. Mayfield used the nearly $3.1 million to buy two strip malls in California, and the four helped him cover it up instead of exposing the theft.
Chief financial officer Blair Ackman, chief operating officer Marsha Bass, chief investment officer W. Emery Matthew, and chief compliance officer and general counsel Alicia Diaz were also charged.
Mayfield took the money, without permission, from a trust account for the pension fund in 2008. He used it to buy the California malls and title them in the name of a MayfieldGentry affiliate, and then later told Ackman what he had done. By May 2011, the others knew of his theft, and instead of turning him in and risking the loss of the pension fund’s business, they all went out of their way to cover it up and mislead the pension fund.
At a critical budget meeting with fund trustees in 2011, Diaz stressed MayfieldGentry’s success in generating a cash return for the pension fund, and touted a projection that MayfieldGentry would remit $4.96 million to the pension fund in 2012. Diaz never told the pension fund trustees that the cash remittance would be reduced by more than 60% once the stolen money was taken into account. At the same meeting, Matthews claimed that MayfieldGentry had achieved a benchmark-beating 6.8% return for the pension fund. He didn’t explain that the 6.8% return would be materially impacted by the $3.1 million theft.
The executives came up with a plan to secretly repay the pension fund by cutting costs at the firm and selling the strip malls. The money Mayfield stole, according to the SEC, could have provided a year of benefits for more than 100 retired police officers, firefighters, and surviving spouses and children. The plan to replace the money failed when MayfieldGentry could not raise enough capital to put the stolen amount back into the pension fund.
They still did not reveal what had happened until May 2012, the evening before the SEC was to file a complaint against Mayfield and the firm for their participation in a “pay-to-play” scheme involving former Mayor Kwame Kilpatrick and Treasurer Jeffrey Beasley of Detroit. The pension plan immediately terminated the relationship. Mayfield and his firm agreed to settle the charges by paying back the stolen amount, but have neither admitted nor denied the settlement allegations. The settlement must be approved by the court.
Meanwhile, Mayfield awaits sentencing in a parallel criminal case in connection with his guilty plea for participation in the pay-to-play scheme.
SEC Warns Against Binary Options, Charges Cyprus-Based Company
The SEC has issued a warning to investors about the potential risks of investing in binary options and has charged a Cyprus-based company with selling them illegally to U.S. investors.
Binary options are options contracts whose payout depends on whether the underlying asset (such as company stock) increases or decreases in value. Investors buying binaries could either receive a payout on expiration of the contract if the company value increased, or could lose everything if it decreased.
The company charged with selling binaries, Banc de Binary, has not registered the options as required, nor has it registered with the SEC as a broker despite acting as one. But it has been busy selling binaries to U.S. investors via YouTube videos, spam emails and other Internet advertising, and its reps have been directly in touch with investors via phone, email and instant messenger chats.
Banc de Binary started selling binary options to U.S. investors in 2010, according to the SEC. In doing so, it has attracted numerous investors, some of whom have very little money but were persuaded to open trading accounts and then buy binary options whose underlying assets include stock and stock indices.
The SEC is seeking disgorgement plus prejudgment interest, financial penalties and other penalties against Banc de Binary; the CFTC also announced a parallel action against the company. In addition, an investor alert on binary options was jointly issued by the SEC’s office of investor education and advocacy and the CFTC’s office of consumer outreach.
Whittier Trust, Former Fund Manager Charged by SEC with Insider Trading
South Pasadena, Calif.-based wealth management company Whittier Trust Co. and former fund manager Victor Dosti were charged by the SEC with insider trading in a scheme involving the securities of Dell, Nvidia Corp., and Wind River Systems.
