Among recent enforcement actions were charges filed by the Securities and Exchange Commission against a New York man for conducting fraudulent securities offerings and stealing investor funds and a Financial Indistry Regulatory Authority fine and censure against a broker-dealer that allowed reps to use personal email accounts for client communications.
In addition, the secretary of the commonwealth of Massachusetts charged four men and their company with fraudulently selling unregistered securities in a pyramid scheme.
SEC: New Yorker Touted Fake Offerings to Pay for Vacation, Plastic Surgery
Anthony Coronati, the operator of an online stock recommendation business, was charged by the SEC with conducting several fraudulent securities offerings and siphoning some of the money raised from investors for a Caribbean vacation and plastic surgery.
According to the agency, Coronati initially held himself out as an investment advisor to a hedge fund that he claimed would invest in equity securities. But the hedge fund never existed, and instead Coronati used the money he raised for himself.
When that source of money dried up, Coronati, who operates the website BidToAsk.com that offers stock recommendations to subscribers, sold membership interests in the company for the purpose of investing in promising technology companies that had not yet held IPOs.
Investors were told that BidToAsk would invest directly in pre-IPO Facebook shares without charging any fees, commissions or markups to investors. But Bidtoask’s Facebook-related investments actually did require the payment of significant fees, which Coronati and Bidtoask hid from investors. Bidtoask did not even own the shares of other technology companies in which it was supposedly investing, and these companies were not actually in the process of an IPO.
To cover what he was doing, Coronati used money from later investors to pay earlier ones, and went so far as to issue fictitious statements indicating holdings in the fake hedge fund and detailing its equally fake holdings. Meanwhile, he used investor money to pay for business expenses, the Caribbean vacation and plastic surgery, and also to purchase securities in a personal brokerage account he held in his own name.
The SEC filed a subpoena enforcement action against Coronati last year after he failed to show up to testify or to produce documents. As a result, he was held in contempt of court and arrested earlier this year.
Coronati and Bidtoask have agreed to settle the SEC’s charges. Coronati must pay back $400,000 in funds stolen from investors, and the money will be deposited into a fair fund for distribution to victims of the fraud schemes. Coronati also agreed to be permanently barred from the securities industry.
Rajaratnam Brother to Pay More Than $840,000 for Insider Trading
The SEC announced that former hedge fund manager Rajarengan “Rengan” Rajaratnam has agreed to pay more than $840,000 and accept securities industry bars in order to settle the agency’s insider trading case against him.
The SEC filed civil charges in March 2013 against Rengan Rajaratnam for his role in the widespread insider trading scheme conducted by his brother Raj Rajaratnam and hedge fund advisory firm Galleon Management. The insider trading occurred in securities of more than 15 companies for illicit gains totaling nearly $100 million. The SEC has now obtained court judgments or settlements in Galleon-related enforcement actions against 35 defendants, resulting in approximately $165 million in monetary sanctions.
Rengan Rajaratnam, who became a portfolio manager at Galleon after co-founding hedge fund advisory firm Sedna Capital Management, neither admitted nor denied the SEC’s allegations in agreeing to the settlement that is subject to court approval.
The proposed final judgment would permanently enjoin Rengan Rajaratnam from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and require him to pay $372,264.42 in disgorgement, $96,714.27 in prejudgment interest and a $372,264.42 penalty.
Under the settlement, he also would be barred from association with any investment advisor, broker, dealer, municipal securities dealer or transfer agent with the right to apply for re-entry after five years.
FINRA Fines, Censures Firm on Personal Email Accounts
FINRA censured Kingsbridge Capital Corp. and fined the firm $15,000 on findings that, from September 2009 to April 2013, four of its registered representatives used their personal email accounts for business-related and client communications.
Such communications were required to be retained, stored in a nonrewriteable and nonerasable format and reviewed by the firm, and Kingsbridge’s written supervisory procedures called for such retention and review.
However, the agency found that instead, the representatives were allowed not only to use their personal email accounts for business communications, but also to store them on their personal computers, where they could be altered or erased. This occurred with Kingsbridge’s awareness and despite its WSPs to the contrary.
The firm neither admitted nor denied the charges. FINRA imposed a lower fine than it might otherwise based on, among other considerations, the firm’s revenues and financial resources.
Illegal Pyramid Scheme Brought Down in Massachusetts
Massachusetts Secretary of the Commonwealth William Galvin has charged four men and their Andover company, EmGoldex Team USA, with fraudulently selling unregistered securities in connection with an international pyramid scheme.
According to the charges, EmGoldex Team USA recruited hundreds of Massachusetts investors into EmGoldex, which claims to be an online store buying and selling investment gold bars and also claims to be registered in the Seychelles, with company addresses in Amsterdam and Dubai.
However, not only were the four — Matthew Michael D’Agati, Joseph Zingales, and James Vincent Piemonte, all of Methuen, and Jonathan Herman Seigler, formerly of Boston — never registered in Massachusetts to sell securities or be an investment advisor, Seigler was not registered in New Hampshire, where he now lives.
But that didn’t stop them from filing corporation papers for EmGoldex Team USA Inc. on June 10, with Seigler as president, Piemonte as treasurer, D’Agati as secretary and Zingales as director. They held recruitment sessions at the Andover headquarters and “launched” Team USA on June 20 at an event at the Wyndham Hotel in Andover, attended by about 300.
While Team USA claimed to be a training facility to help new investors to become members and get rich quickly, instead all it was a front for the four to make money off gullible investors by bringing more members into their downstream pyramid.
Team USA and its founders are charged with selling interests in an illegal multilevel marketing company targeting investors both in Massachusetts and around the world. In addition, the complaint alleges that EmGoldex has no discernible retail sales activity and relies on new investors’ funds as its primary source of income. It seeks a cease and desist order, an accounting of all proceeds from the alleged wrongdoing, and a requirement that the company and the four named principals offer remuneration to investors who suffered losses.
— Check out SEC, FINRA Enforcement: HFT Firm Charged With Manipulating Closing Prices on ThinkAdvisor.