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January 15, 2015 at 09:32 AM
Among recent enforcement actions, the Securities and Exchange Commission charged a man from Ontario with masterminding a fraudulent trading scheme and ordered another firm to hire a dedicated chief compliance officer. The Financial Industry Regulatory Authority expelled an investment firm and barred its CEO for fraud; in two separate actions censured and fined Citigroup Global Markets; and suspended and fined a chief compliance officer over AML failures.
And in a lawsuit filed in San Francisco, Anthony Miele III is seeking to recover $150 million in stocks and dividends from Franklin Resources that were allegedly a never-received bequest.
Franklin Resources, Johnson Sued for $150M Over Stock Bequest
Franklin Resources and its retired chairman Charles Johnson are the target of a lawsuit that seeks to recover some $150 million in stocks and dividends. Before his retirement, Johnson built the publicly traded mutual fund firm into a force majeure in the industry.
A lawsuit filed in federal court in San Francisco by Anthony Miele III of Manhattan says that, although he was left Franklin shares that were worth $16,000 at the time of his father’s death in 1974, he was unaware of the bequest and that Johnson, among others, hid the shares from him. Now, Miele says, the shares are worth $130 million, plus another $20 million in uncashed dividends.
Miele alleges that he was never told about the stock or the dividends, according to the suit, which accuses Johnson of “breach of fiduciary duty, negligence, fraudulent concealment and negligent prevention of assistance.”
SEC Slams Shelton Financial for Hiding Mutual Fund Payments to BD
The SEC has censured and fined Shelton Financial Group and its founder and owner Jeffrey Shelton, and ordered them to bring in a dedicated chief compliance officer.
According to the SEC, the firm had an arrangement with its broker-dealer that it would be compensated for all client assets that were invested in certain mutual funds. At first the firm failed to disclose the arrangement and the conflict of interest that it represented to clients, and when later it did disclose the arrangement, at first it failed to do so accurately.
Shelton served as the firm’s CCO from 2004 until June of 2010. In 2007 he hired a chief operating officer who in 2010 would become the firm’s new CCO. In 2012, the SEC discovered through an onsite exam that the firm’s policies and procedures were inadequate regarding conflicts of interest and its compliance policies were not tailored to its business.
Although the firm attempted to correct the disclosure failures to clients and on its Form ADV, it was not done correctly; the CCO used existing language that had been written by Shelton. As a result, clients were unaware that a conflict of interest existed. The firm failed to disclose the conflict of interest until a brochure produced in October of 2013.
The SEC ordered that, in addition to hiring a dedicated CCO and bringing in an independent compliance consultant, the firm and Shelton have been ordered to pay total disgorgement of $99,114.19 and prejudgment interest of $20,952.91, as well as a civil penalty of $70,000. The firm and Shelton neither admitted nor denied the charges.
SEC Charges Ontario Man With Fraudulent Trading
The SEC has charged Aleksandr Milrud, who lives in Ontario, Canada, with putting together a market manipulation scheme that used “layering”—the placing of orders by a trader that are used solely to trick others into buying or selling U.S. publicly traded stocks at artificially inflated or depressed prices.
According to the agency, since at least January 2013, Milrud recruited online traders chiefly based in China and Korea, provided them with access to trading accounts and technology and taught them on how to steer clear of regulators while engaged in layering. Among the strategies he used to avoid detection were having his traders use multiple computers, Internet protocol (IP) addresses, and user names. He provided traders with at least two accounts; one was for what Milrud called “the dirty work” of layering, and the other was used to execute what he termed “clean” trades at prices affected by the dirty work of the first account.
Milrud had his traders layer a wide variety of stocks while limiting the number of trades and the price changes; he hoped that by doing this, the “money” trades would not be noticed. He also distanced himself from some of the transactions by wiring funds to an offshore bank account and having the money delivered to him as cash in a suitcase.
The SEC is seeking a final judgment ordering Milrud to return his allegedly ill-gotten gains with interest plus penalties and permanently barring him from future violations. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey has announced criminal charges against Milrud.
The investigation is continuing.
