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SEC, FINRA Enforcement: Firm Expelled Over Kickbacks

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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

California resident Steve Chen, the operator of a worldwide pyramid scheme promising investors profits from “massive” amber holdings a venture purportedly backed by the massive amber holdings of his company, has been charged with fraud by the SEC. In addition, the agency obtained asset freezes.

Thirteen California-based entities, including USFIA Inc., are at the center of Chen’s scheme. According to the agency, USFIA and Chen’s other entities have raised more than $32 million from investors in and outside the U.S. since at least April 2013. Chen and his companies duped investors about a lucrative initial public offering for USFIA that never happened and about claims to own or control amber deposits worth billions of dollars.

Chen promoted USFIA as a legitimate multilevel marketing company that owns several large and valuable amber mines in Argentina and the Dominican Republic. Investors were lured to invest amounts ranging from $1,000 to $30,000 with promises of profits — and greater profits if they in turn brought in more investors.

Beginning in September 2014, the defendants claimed to have converted existing investors’ holdings into “Gemcoins,” which they said was a virtual currency secured by the company’s amber holdings but which are actually worthless.

In addition to the asset freeze, the SEC was granted the appointment of Thomas Seaman as the temporary receiver over USFIA and the other entities. The agency seeks preliminary and permanent injunctions, disgorgement of allegedly ill-gotten gains with prejudgment interest, and civil penalties.

Florida Advisor Charged With Fraud, Hiding ETF Risks

Florida-based investment adviser Arthur Jacob and his company Innovative Business Solutions LLC have been charged by the SEC with deceiving clients over a period of at least five years.

According to the agency, from at least mid-2009 through July 2014, Jacob and IBS misrepresented the risks and profitability of investments he purchased for investment advisory clients. While Jacob knew about the risks of certain ETFs, he did not tell clients about them; in fact, he told his clients that his investment strategy was safe, carried low or no risk, and would produce predictable profits.

Jacob also hid his disciplinary history, which included being disbarred as a lawyer for misappropriating client funds and other professional misconduct. In fact, neither Jacob nor IBS were registered with the SEC or any state as investment advisors, and Jacob lied to clients, saying that he and IBS were not required to register, the SEC says. In addition, the SEC says, he lied to a brokerage firm about the advisory services he and IBS provided so that he could retain trading authorization over clients’ accounts and continue to receive advisory fees for managing the accounts.

A public hearing is scheduled, and the SEC’s investigation is continuing. SEC Fines Briargate Trading, Owner for Spoofing

The SEC has charged New York-based proprietary trading firm Briargate Trading LLP and one of its co-founders, Eric Oscher, with spoofing.

According to the agency, Oscher and Briargate schemed by placing sham orders, known as spoofs, to make it look as if there was more interest in certain stocks and so manipulate the stock prices. Once the spoof orders were entered, Oscher placed bona fide orders on the opposite side of the market for the same stocks and took advantage of the artificially inflated or depressed prices. Immediately after the bona fide orders were executed, Oscher canceled the spoof orders.

The scheme ran from October 2011 through September 2012, focusing on New York Stock Exchange-listed securities. Oscher, a former NYSE specialist, used his Briargate account to place multiple large spoof orders on the NYSE before the exchange opened for trading at 9:30 a.m. Briargate’s non-bona fide orders impacted the market’s perception of demand for the stocks it spoofed and often the prices of the stocks.

Oscher gamed the price movement in the spoofed securities by sending orders for them on the opposite side of the market to exchanges that opened before the NYSE. Oscher canceled the non-bona fide NYSE orders before the NYSE opened and unwound the positions he had established on other exchanges, and brought in about $525,000 in profits.

Without admitting or denying the charges, Oscher and Briargate agreed to disgorge $525,000 of ill-gotten gains plus prejudgment interest of $37,842.32. Briargate also agreed to pay a civil penalty of $350,000, and Oscher agreed to pay a civil penalty of $150,000.