The Financial Industry Regulatory Authority has expelled New York-based Halcyon Cabot Partners Ltd. and barred two executives after finding the firm had engaged in a kickback scheme, among other violations, the regulator said Wednesday.
Meanwhile, the SEC charged a New Jersey firm with running a Ponzi scheme; charged the operator of a worldwide pyramid scam involving amber mining; charged a Florida advisor with misleading clients about risky ETFs; and fined Briargate Trading and its owner for spoofing, a form of manipulative trading.
Halcyon Expelled, Execs Barred Over Private Placement Kickbacks
FINRA has expelled New York-based Halcyon Cabot Partners Ltd. and barred its CEO, Michael Morris, and chief compliance officer, Ronald Heineman, from the securities industry, for fraud, sales practice abuses and widespread supervisory and anti-money laundering failures. FINRA found that Halcyon, Morris and Heineman schemed to hide a kickback of private placement fees.
According to the agency, Halcyon, Morris and Heineman, along with the previously barred registered representative Craig Josephberg, agreed to hide the discount the issuer provided to a venture capital firm when it bought a private placement in a cancer drug development company. They put the scheme into effect via a fake placement fee agreement that was entered into after the venture capital firm had already agreed to purchase the entirety of the offerings.
Halcyon did no work, since a buyer was already in place, but instead returned nearly all of its $1.75 million placement fee to the investor through sham consulting agreements. This scheme allowed the drug company to hide the fact that it was selling its shares at a discount.
On top of the kickback scheme, FINRA also found that Halcyon and Morris enabled a now-expelled broker-dealer, Felix Investments LLC, to collect undisclosed commissions. Pursuant to an agreement between Halcyon and Felix, Felix charged buyer commissions and Halcyon charged seller commissions on a transaction, despite the fact Halcyon provided no services to the sellers. Halcyon then secretly shared the sellers’ commissions with Felix.
In addition, Morris falsified Halcyon’s books and records to hide Josephberg’s sales of securities in states where he was not registered, including Florida, Texas and Colorado. Halcyon also failed to supervise Josephberg, who churned retail customer accounts and effected unauthorized trades.
Halcyon Cabot Partners, Morris and Heineman neither admitted nor denied the charges but consented to the sanctions.
New Jersey Fund Manager, Firm Charged With Bilking Clients
The SEC has charged William Wells, of River Vale, New Jersey, and his firm Promitor Capital Management LLC with defrauding investors by lying about his credentials, concealing trading losses and using investor funds to make Ponzi-like payments to other investors.
According to the agency, Wells claimed to some investors that he was an RIA and would put their money into specific stocks. Instead, Wells and his firm invested mainly in high-risk options with poor results that he hid with phony investor account statements that grossly inflated performance.
He further hid his actions — and losses — by using new investor funds to pay old investors. One investor actually asked him via text if he was running a Ponzi scheme after he couldn’t get Wells to give him back some of his investment.
Wells brought in more than $1.1 million from dozens of investors since 2009, but by late summer, the Promitor fund brokerage accounts held less than $35. The rest was frittered away on trading losses, Ponzi-like payments or diversion into Wells’ personal bank account.
The SEC seeks permanent injunctions and financial penalties against Wells and Promitor, and return of allegedly ill-gotten gains with prejudgment interest. Meanwhile, the investigation is continuing. Amber Mining Pyramid Scheme Gets SEC Fraud Charges for Operator