Enforcement Roundup: Wells Fargo, JPMorgan Slammed Over Mortgage Kickbacks

Fund Manager Ran Ponzi Scheme to Buy Home, Cars and Jewelry: SEC

A Fort Lauderdale, Florida-based investment advisory firm, its manager and three related funds face fraud charges and an asset freeze by the SEC.

Elm Tree Investment Advisors LLC; its founder and manager, Frederic Elm; and the three funds, Elm Tree Investment Fund LP; Elm Tree “e”Conomy Fund LP; and Elm Tree Motion Opportunity LP were the target of the SEC actions after most of the funds of misled investors went to make Ponzi-style payments to other investors. Along the way, some of the money also went to pay for Elm’s personal expenses.

Elm, formerly known as Frederic Elmaleh, along with his unregistered advisory firm and the three funds, duped investors to the tune of more than $17 million since November of 2013. In addition to keeping some investors quiet with payments, Elm used some of the money to buy a $1.75 million home, luxury automobiles and jewelry, and to cover daily living expenses.

Elm’s wife, Amanda Elm, formerly Elmaleh, is named as a relief defendant based on her receipt of investor monies. She was also the target of a temporary asset freeze.

The SEC is seeking relief for investors, including return of allegedly ill-gotten gains, with interest and financial penalties. The investigation is continuing.

Former Engineering Exec Charged by SEC With Bribing Qatar Officials

Walid Hatoum, a former executive at the PBSJ Corp., an engineering and building firm, was charged by the SEC with violating the Foreign Corrupt Practices Act (FCPA) by offering and authorizing bribes and employment to foreign officials to secure Qatari government contracts. PBSJ is now known as the Atkins North America Holdings Corp. and no longer offers public stock in the U.S.

According to the agency, Hatoum offered to funnel nearly $1.4 million in bribes to a local company owned and controlled by a foreign official in order to secure two multimillion-dollar Qatari government contracts for PBSJ in 2009. The official then provided Hatoum and PBSJ’s international subsidiary with access to confidential sealed-bid and pricing information that enabled the PBSJ subsidiary to tender winning bids for a hotel resort development project in Morocco and a light rail transit project in Qatar. Hatoum also offered employment to a second foreign official in return for assistance as the bribery scheme began to unravel and PBSJ lost the hotel resort contract. Even though the bribes themselves were not delivered before the scheme was uncovered by the company, PBSJ earned approximately $2.9 million in illicit profits because it continued work on the light rail project until a replacement company could be found.

Without admitting or denying the charges, Hatoum has agreed to pay a $50,000 fine. In addition, the agency has reached a separate deferred prosecution agreement (DPA) with the company that defers FCPA charges for two years and requires the company to comply with certain conditions.

Under the terms of the DPA, PBSJ must immediately pay $3.4 million, of which $3,032,875 is disgorgement and interest, and a penalty of $375,000; that reflects the company’s significant cooperation with the SEC investigation.

FINRA Censures, Fines Michigan Firm for Supervisory, Compliance Failures

Ann Arbor, Michigan-based Sigma Financial Corp. was censured by FINRA and fined $185,000 after the agency found an array of supervisory and compliance failures.

Sigma, said FINRA, was unreasonably relying on a limited number of people from an entity with common ownership to remotely conduct all supervisory and compliance functions, for a total of 1,274 registered representatives and 854 branch offices between the firm and another broker-dealer, as well as its affiliated advisor.

In addition, FINRA found that the firm’s system for reviewing registered representatives’ emails was not reasonably designed, which meant that the firm’s email communications were inadequately supervised. Additional supervisory and compliance failures included failure to conduct branch office inspections in a timely manner and inadequate supervision of representatives’ creation and use of consolidated statements.

Other problems were found in the monitoring of the outside entity’s financial statements and the expense, gift, and gratuity logs to guard against potential issues of influence. Representatives’ websites were also inadequately monitored for supervision of required changes or compliance. The firm’s written supervisory procedures also failed to address monitoring of activity at representatives’ accounts held at other member firms.

Not only that, the firm failed to conduct its own independent due diligence on the structured products recommended to customers, instead relying completely on the determination of its fixed-income distributors to sell the structured products as providing enough evidence of suitability. It also failed to determine whether such products were appropriate for its customers.

Also, when a customer sold a variable annuity and purchased a fixed annuity, neither transaction was recorded on the firm’s books and records, and no supervisory review of the variable-to-fixed annuity transaction’s suitability was conducted.

Other failures included not monitoring for client changes of address, for the protection of confidential customer information, the use of passwords, antivirus and antispyware tools, and lack of a supervisory system concerning the registration of branch offices that executed trades.

The firm neither admitted nor denied the findings, but consented to FINRA’s actions.

— Check out 8 Oddest Enforcement Cases of 2014 on ThinkAdvisor.