Among recent enforcement actions by the Securities and Exchange Commission were charges against the chief executive officer of a sexual health products retailer and a paid promoter for fraud, while the Financial Industry Regulatory Authority censured and fined one firm after it did not close fail-to-deliver positions and another for mismarking solicited orders as unsolicited.

CEO, Promoter Charged in Promotion of Sexual Health Products Retailer

Scott Fraser, the CEO and a major shareholder in Las Vegas-based Empowered Products Inc., and paid promoter Nathan Yeung were charged by the SEC for orchestrating fraudulent promotional campaigns to tout the company’s stock.

According to the agency, Fraser separately ran a newsletter publishing business and hired Yeung to secretly help him promote Empowered Products through online newsletter articles that were supposedly authored by independent writers.

Unbeknownst to investors, however, Fraser and Yeung actually wrote, authorized and distributed these glowing articles about Empowered Products themselves, working under such pseudonyms as “Charlie Buck” and then hiring other promoters to disseminate the promotions to their respective subscriber lists in exchange for fees.

And of course the promotions failed to disclose that Empowered Products and Fraser approved and paid for the advertisements.

Fraser, his newsletter company Contrarian Press and Yeung were all charged with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 17(b) of the Securities Act of 1933. In addition, the SEC charged Fraser with aiding and abetting violations by Contrarian Press, and seeks to hold him liable as a control person of the company. The complaint also charges Yeung with aiding and abetting violations by Fraser and Contrarian Press.

FINRA Censures, Fines Firm on Fail-to-Deliver Positions

FINRA censured Greenwich, Connecticut-based Timber Hill, LLC and fined the firm $145,000, in addition to requiring revisions to its supervisory system and written supervisory procedures, for tracking and closing out fail-to-deliver positions.

According to the agency, in several instances, the firm had a fail-to-deliver position in equity securities at a registered clearing agency that was attributable to bona fide market-making activities or short sale activities, but did not close the fail-to-deliver position by purchasing or borrowing appropriate securities within the time frame prescribed by Rule 204(a)(3) of Regulation SHO.

In hundreds of instances, FINRA said, the firm accepted a short sale order from another person, or effected a short sale for its own account without first borrowing the security, or making an arrangement to borrow the security. As a result it had a fail-to-deliver position at a registered clearing agency in the security but failed to close it out in compliance with regulations.

In addition, shortcomings in its supervisory procedures meant that the firm’s procedure for tracking and closing out fail-to-deliver positions did not properly account for the firm’s short sale activities in determining whether the firm was net long or net flat on the applicable close-out date; it also improperly used securities purchased over multiple days prior to the close-out date or after the start of trading on the close-out date to satisfy its close-out obligation.

Without admitting or denying the findings, the firm consented to the sanctions.

FINRA Fines, Censures Firm on Repeated Solicited Order Markings

FINRA censured Boca Raton, Florida-based Shearson Financial Services, LLC and fined the firm $100,000, after it said the firm continued to inaccurately mark orders as unsolicited when the orders were solicited. The firm did so despite receiving a Cautionary Action Letter in 2012 from FINRA.

According to the agency, the mismarked order tickets resulted in the firm maintaining inaccurate books and records. In addition, FINRA said that the firm, acting through its registered representatives, exercised discretion in transactions in customer accounts without the customers’ prior written approval and without the firm’s acceptance of the accounts as discretionary.

Without admitting or denying the findings, the firm consented to the sanctions.

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