SEC Enforcement: Traders Used Wives’ Information to Make Insider Trades

Lee is also the target of a parallel criminal indictment being prosecuted by the U.S. Attorney’s Office in the western district of Washington.

Pyramid Scheme Perpetrators Charged, Assets Frozen by SEC

The SEC has charged the perpetrators of a global pyramid scheme that preyed on Asian and Latino communities, and frozen the assets in the case.

According to the SEC, three entities, controlled by “Phil” Ming Xu, a resident of Temple City, Calif., are collectively operating under the business names WCM and WCM777. They are posing as multilevel marketing companies in the business of selling third-party cloud computing services, which can include website hosting, data storage and software support. The entities are based in California and Hong Kong.

WCM and WCM777 have raised more than $65 million since March 2013 by falsely promising tens of thousands of investors that the return on investment in the cloud services venture would be 100% or more in 100 days. WCM and WCM777 sell their products exclusively to investors and have no other apparent sources of revenue, and claimed that investor money would be used to build out cloud services or to incubate high-tech companies.

While investors were told they would receive “points” for making investments or enrolling other investors, points that would be convertible into equity in initial public offerings of those high-tech companies their money would help launch, instead Xu and the WCM entities used the money to make Ponzi payments masquerading as investment returns to some investors. They also spent investor funds to buy up two golf courses and a warehouse, vacant land, and several single-family homes. They played the stock market with investor cash, and made other related investments through intermediary companies, such as an oil and gas offering. Some of the money also found its way to a rough diamond jewel merchant in Hong Kong and another unrelated company affiliated with Xu.

The SEC has obtained asset freezes and the appointment of a temporary receiver over the assets of WCM, WCM777, and several other entities named as relief defendants for the purpose of recovering money from the scheme in their possession. In addition, the agency’s request for an order prohibiting the destruction of documents and requiring the defendants to provide accountings was granted.

Transamerica Advisors Fined for Improper Fees, Overcharging

St. Petersburg-based Transamerica Financial Advisors was fined by the SEC for improperly calculating advisory fees and overcharging clients.

According to the SEC, the firm offered breakpoint discounts designed to reduce the fees that clients owed to the firm when they increased their assets in certain investment programs and permitted clients to aggregate related account values to get the discounts.

But Transamerica failed to process all client aggregation requests, and also had conflicting policies on whether representatives were required to pass on to clients the savings from breakpoint discounts. As a result, the firm overcharged certain clients by failing to apply the discounts and failed to have adequate policies and procedures to ensure that the firm was properly calculating its fees.

Failures in processing aggregation requests occurred since 2009, and the firm was first told about them by SEC examiners in 2010 after examination of a branch office. The firm did give refunds to the clients of that branch office, but never executed the firmwide review recommended by the examiners.

That meant that in 2012, when examiners were at the firm’s headquarters, they found that Transamerica was still failing to aggregate some related client accounts. The problem was firmwide and, in fact, Transamerica had conflicting policies throughout its branch offices on whether the firm required its representatives to provide breakpoint discounts to advisory clients.

Transamerica has agreed to settle the SEC’s charges. As a result of the agency’s investigation, the firm reviewed client records and has reimbursed 2,304 current and former client accounts with refunds and credits totaling $553,624 including interest. The firm has also agreed to pay an additional $553,624 penalty.

Additional settlement terms require the firm to retain an independent consultant to review its policies and procedures pertaining to its account opening forms, fee schedules, and fee computation methodologies as well as the firm’s account aggregation process for breakpoints.