SEC, FINRA Enforcement: Firm Expelled Over Kickbacks

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.