Among recent enforcement actions by the Securities and Exchange Commission were fraud charges against 10 individuals for tricking investors into a stock purchase and a settlement with a Silicon Valley executive on insider trading charges.
In addition, the Financial Industry Regulatory Authority censured and fined a firm for failing to apply appropriate discounts to clients’ unit investment trust purchases.
SEC Charges 10 With Fraud on Stock Promotion, Kickbacks
Ten people were charged with fraud by the SEC for selling stock in a kickback scheme.
According to the agency, the schemes used in the fraud were laced with cash bribes and other kickbacks to registered representatives and unregistered brokers who solicited investors to buy stock in ForceField Energy Inc.
Investors had no idea that the people soliciting them to buy the stock were being paid by a ringleader — ForceField’s then-chairman Richard St. Julien — to steer them to the stock. In fact, some of the 10 went so far in their efforts to escape detection that they communicated via prepaid disposable “burner” phones and encrypted, content-expiring text messages.
Their efforts were in vain, however. The SEC charged St. Julien, purported investor relations professional Jared Mitchell and investment newsletter Wall Street Buy Sell Hold publisher Christopher Castaldo, along with registered representatives Richard Brown, Gerald Cocuzzo, Naveed (Nick) Khan, Maroof Miyana and Pranav Patel and unregistered brokers Herschel (Tres) Knippa and Louis Petrossi.
St. Julien himself had tried to hide the illegality of his actions by using a company in Belize to pay the kickbacks, wiring money from a company bank account to Mitchell, who called himself the “brown bag man” and withdrew the payments and paid cash bribes in person to Brown, Cocuzzo, Khan, Miyana and Patel.
Castaldo lured his victims to invest in ForceField through a nationwide cold-calling campaign he conducted from his office on Long Island in New York. He recorded the prices and amounts sold to investors and sent the information to St. Julien so he could receive the kickbacks, which were wired to him through the Belizean company.
Neither Petrossi nor Knippa was registered as a broker to solicit investments in ForceField’s private placement offerings, and they received undisclosed kickbacks from St. Julien.
Petrossi told one investor in an email that “I can not [sic] be bought,” and Knippa went so far as to appear on the Fox Business Network’s “Varney & Co.” show and the Business News Network as a purported market commentator to tout ForceField as a great investment — but never told his hosts or viewers he was being paid to solicit investors for ForceField. Meanwhile, Knippa said something else entirely to St. Julien in text message exchanges: “I can pitch (ForceField) as good as anyone in the world.”
The SEC seeks disgorgement plus prejudgment interest, penalties and permanent injunctions against all defendants as well as penny stock bars against St. Julien, Castaldo, and Petrossi and an officer-and-director bar against St. Julien.
Criminal charges were also brought against St. Julien last year; the other nine now also face criminal charges. The SEC’s investigation is continuing.
SEC Wins Settlement With Silicon Valley Exec on Insider Trading
The SEC has announced that Peter Nunan, a senior engineering executive at a subsidiary of Screen Holdings Co., a semiconductor equipment manufacturer, has agreed to pay more than half a million dollars to settle charges that he traded on inside information he got from a board member at Minnesota-based FSI International, which was trying to solicit a competing bid in advance of a merger.
According to the agency, Nunan was contacted by the FSI board member and confidentially informed that a Japan-based semiconductor equipment company called Tokyo Electron Ltd. was negotiating to acquire FSI. The board member knew that Nunan knew the executive responsible for evaluating potential corporate acquisitions at Screen Holdings. Nunan thereafter acted as a conduit for communications between the two companies as FSI sought a competing bid.
But Nunan also misused the confidential information about FSI’s potential merger plans, buying 105,000 shares of FSI during the next six months. He also recommended the trade to his brother, who purchased 1,000 shares of FSI stock. Nunan sold most of his FSI stock the day after Tokyo Electron and FSI publicly announced a merger agreement on Aug. 13, 2012; his illicit profits from trading and tipping totaled $254,858.
Without admitting or denying the allegations, Nunan agreed to be permanently enjoined from future violations and ordered to pay $254,858 in disgorgement of ill-gotten gains, plus interest of $24,587 and a penalty of $254,858 for a total of $534,303.
FINRA Censures, Fines Firm, Orders Restitution on UIT Charges
FINRA has censured and fined U.S. Bancorp Investments Inc. $150,000, as well as ordering the firm to pay $144,456.38 in restitution to customers after finding that the firm failed to identify and apply sales-charge discounts to certain customers’ eligible purchases of unit investment trusts. That resulted in customers paying excessive sales charges.
According to the agency, U.S. Bancorp Investments failed to have a supervisory system and written supervisory procedures that would make sure that customers received sales-charge discounts on all eligible UIT purchases. Although the firm had WSPs related to UIT sales-charge discounts, it failed to e inform and train registered representatives and supervisors well enough to ensure that those procedures were followed and representatives identified and applied all applicable discounts.
The firm has neither admitted nor denied FINRA’s findings, but has consented to the sanctions and has paid restitution to all affected customers.
— Check out SEC Charges Unregistered Men, Ex-Broker in Investor Fraud on ThinkAdvisor.