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November 14, 2014 at 02:54 AM
Among recent enforcement actions by the SEC were charges against a California lawyer and two men in Massachusetts for their pump-and-dump scheme to defraud investors in a ticket-brokering business and against India-based operators of a high-yield investment scheme that relied heavily on social media.
Also, FINRA censured and fined Merrill Lynch, Pierce, Fenner & Smith Inc. in two separate instances of failures—one related to recording failures and the other to OATS reporting.
SEC Acts on Ticket Broker Pump-and-Dump Scheme
The SEC has charged Richard Weed, a Newport Beach, California law partner, and Thomas Brazil and Coleman Flaherty, both of Massachusetts, in a pump-and-dump scheme around CitySide Tickets, Inc., a Boston-based ticket-brokering business.
According to the agency, Weed facilitated a scheme to pump and dump the stock of CitySide Tickets, which he helped structure into a publicly traded company through reverse mergers.
Weed created backdated promissory notes and authored false legal opinion letters that enabled Thomas Brazil and Coleman Flaherty to obtain millions of purportedly unrestricted shares of stock in the company.
Investors were then blitzed with a false and misleading promotional campaign touting CitySide Tickets as a budding national leader on the verge of acquiring smaller ticket firms across the country and positioning itself as an attractive takeover target for Ticketmaster.
All the false promotions depicted CitySide as growing and even taking over smaller ticket resellers, when the company was actually in dire financial straits. As the company’s stock price rose on the false hype, Brazil and Flaherty sold their shares to unsuspecting investors for illicit proceeds of approximately $3 million, and Weed made plenty, too, for his part in the scheme.
It didn’t take long until the market for CitySide Tickets stock collapsed, and the company eventually went out of business.
The SEC is seeking disgorgement of ill-gotten gains from the scheme, plus interest and penalties, as well as penny stock bars and permanent injunctions against further violations of the securities laws. In addition, the agency also seeks to bar Weed from serving as an officer or director of any public company.
In a parallel case, the U.S. Attorney’s Office for the District of Massachusetts has announced criminal actions against Weed, Brazil and Flaherty.
SEC Charges India-Based Operators of High-Yield Investment Scheme
The SEC has charged Pankaj Srivastava and Nataraj Kavuri, two India-based operators of an investment scheme that sought to exploit investors through pervasive social media pitches on Facebook, YouTube and Twitter.
According to the agency, Srivastava and Kavuri promised “guaranteed” daily profits in anonymous solicitations for investment in Profits Paradise, their phony investment management company. They created a Profits Paradise website and related social media sites to describe the profits as “huge,” “lucrative” and “handsome,” and they characterized the risk as “minimal.”
