The Securities and Exchange Commission recently filed charges in a microcap scheme and barred an accounting officer who indulged in unauthorized trading, then tried to cover it up.
In addition, FINRA censured and fined a firm for failures related to unsuitably concentrated Puerto Rico securities purchases.
SEC Busts Microcap Scheme, Boiler Room Operations
The SEC charged the operators of a South Florida-based microcap scheme with fraud and froze assets after it found that three boiler room brokers and their agents were selling unregistered stock.
According to the agency, investors were defrauded via cold calls through a boiler room spearheaded by brokers Dean Esposito of Boca Raton, Florida; Joseph DeVito of Brooklyn, New York; and Frederick Birks of Orlando, Florida, who hid from investors that they had all been barred from the industry.
The brokers and their sales agents were hired by Joseph Azzata of Boca Raton, CEO of eCareer Holdings Inc., to sell unregistered stock shares in the company. Investors were told their money would be used as working capital to develop eCareer’s online job staffing business. But about 30% of their money instead went into exorbitant fees for the brokers and sales agents.
The payments were disguised in eCareer’s corporate filings as fees to third parties for consulting and advisory services. Company filings and offering materials also said the shares would be sold only to accredited investors, but the true targets were anyone who could pay — including some nonaccredited investors aged 85 to 98 years old.
The SEC said that eCareer, Azzata, Esposito, DeVito and Birks raised more than $11 million in funds from more than 400 investors since August 2010. Not only did $3.5 million of that amount go to those “fees,” Azzata diverted another $650,000 to pay his motorsports hobby expenses and some of his family’s expenses, including his kids’ private school tuition and his wife’s shopping bills. Corporate filings characterized the spending as working capital.
The SEC seeks disgorgement of ill-gotten gains, prejudgment interest and financial penalties, as well as other relief for investors. It obtained a temporary restraining order and temporary asset freeze, and Azzata is temporarily barred from serving as an officer or director of eCareer Holdings and voting the company’s shares. In addition, his wife is named as a relief defendant, to recover investor proceeds that were diverted to her personal accounts or expenditures, and trading in eCareer Holdings shares has been suspended.
The investigation is continuing.
SEC Bars Exec at Japanese Subsidiary for Decades-Long Fraud
The former controller of Molex Japan Co. Ltd., the Japanese subsidiary of a Chicago-area company, has been charged with fraud by the SEC after he cost his company hundreds of millions of dollars and then manipulated accounting records to avoid detection. The risky trading began more than two decades ago.