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August 08, 2013 at 11:48 AM
Among recent enforcement actions by FINRA and the SEC were a $1.4 million fine for Oppenheimer & Co. for violations that included the unregistered sale of penny stocks and an inadequate anti-money laundering (AML) program; charges against a purported biofuel company and a dozen people involved in a pump-and-dump scheme; charges against a former employee of Green Mountain Coffee and his friend for insider trading; and charges against a former Marine who played on his veteran status to bilk fellow veterans and active-duty service members, as well as civilian investors, in a hedge fund investment scheme.
SEC Charges Ex-Marine With Bilking Fellow Vets, Servicemembers, Civilians
Former Marine Clayton Cohn and his hedge fund management firm, Market Action Advisors, were charged by the SEC, after Cohn masqueraded as a successful trader to defraud fellow veterans, current servicemembers and other investors.
Cohn raised nearly $1.8 million from investors through a hedge fund he managed after lying to investors about his success as a trader, the performance of the hedge fund, his use of investor proceeds and his personal stake in the fund.
He solicited friends, family members and fellow veterans to invest in his hedge fund, and played on his military background to do so. One way he did that was by controlling a so-called charity called the Veterans Financial Education Network (VFEN) that supposedly teaches vets how to understand and manage their money. VFEN press releases boast of Cohn’s Marine Corps background, urging veterans to find “a money-manager who is both trustworthy and knows what he is doing.” VFEN’s website identifies Cohn as a money manager who “manages millions of dollars.”
Not true. While Cohn told his targets, mostly unsophisticated investors, that he had invested $1.5 million of his own money in his hedge fund and that an accounting firm would audit the fund’s financial statements, the truth was that, not only did he only invest around $4,000 of his own money in the fund, but of all the investor money he brought in, less than half was ever actually invested. Instead, he spent a good chunk of it. Not only that, the firm he named never agreed to do the audit.
More than $400,000 was squandered on such personal expenses as a Hollywood mansion, a luxury car and extravagant tabs at high-end nightclubs—all calculated to make him look like a successful trader and investor. But of the money he did invest in the hedge fund, nearly all was lost. To cover up the fraud and keep the money coming in from investors, Cohn generated phony statements that showed annual returns of more than 200%.
The SEC was granted emergency relief, including a temporary restraining order and asset freeze, and seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties from Cohn and Market Action Advisors.
Penny Stock Sales, AML Failures Get Oppenheimer a $1.4M FINRA Fine
FINRA fined Oppenheimer & Co. $1,425,000 for the sale of unregistered penny stock shares, and for failure to have an adequate anti-money landering compliance program to detect and report suspicious penny stock transactions.
Charges were first brought against the firm, which is not affiliated with OppenheimerFunds, in a May FINRA complaint. The firm permitted customers who had only recently opened accounts to deposit large blocks of penny stocks, which were then sold and the proceeds transferred elsewhere.
Other circumstances surrounding the sales should have raised red flags, according to FINRA, but the agency determined that Oppenheimer’s systems and procedures governing penny stock transactions were inadequate and unable to determine whether stocks were restricted or freely tradable. A lack of adequate supervisory reviews meant that Oppenheimer also failed to determine whether the securities were registered. FINRA also determined that there were additional failures.
This is the second time Oppenheimer has been found to have violated AML obligations. In addition to the fine, the firm is also required to retain an independent consultant to review its penny stock and AML policies, systems and procedures. Oppenheimer agreed to the sanctions without admitting or denying the charges.
SEC Files Charges in $4.4 Million Pump-and-Dump Scheme
