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Regulation and Compliance > Federal Regulation > SEC

SEC Enforcement: Ex-Movie Producer Used Investor Cash to Buy Guns and Jewels

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The Securities and Exchange Commission charged David R. Bergstein, a former movie producer and self-proclaimed private equity executive, with defrauding investors in hedge funds and using the money he stole to support his extravagant lifestyle.

Bergstein, of Hidden Hills, California, stole millions from investors in 2011 and 2012 and used the money for purchases with a firearms dealer, an antique watch and jewelry retailer, and a bonsai tree nursery, according to the SEC’s complaint

The SEC alleges that the scheme relied on a series of intricate transactions by Weston Capital Asset Management, then a registered investment advisor, with two of its unregistered hedge funds, Weston Capital Partners Master Fund II Ltd. and the Wimbledon Fund SPC Class TT Segregated Portfolio. 

In one transaction, the SEC alleges that Bergstein misappropriated at least $2.3 million of money that was purportedly meant for investments in medical-billing businesses and helped Weston Capital Asset Management conceal the true nature of the transaction from Weston investors.

In a second allegedly fraudulent transaction, Bergstein stole more than $3.5 million of funds also purportedly meant, in part, for investments in medical-billing businesses.

“The use of elaborate corporate transactions to mask old-fashioned theft of investor monies will not prevent the SEC from enforcing the federal securities laws and protecting investors,” said Andrew M. Calamari, director of the SEC’s New York Regional Office, in a statement. “Violators will be held to account no matter the artifice used to perpetrate their frauds.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Bergstein and Keith D. Wellner, who was formerly Capital Asset Management’s general counsel, chief compliance officer and chief operating officer.  Wellner previously settled SEC charges filed in federal district court in Florida and has been barred from working in the securities industry.

The SEC is seeking injunctions, the return of allegedly ill-gotten gains, and monetary penalties.

Israeli-based Firm Charged With Misleading Investors About Binary Options Profitability

The SEC announced that an Israeli-based firm must pay more than $1.7 million for misleading U.S. investors into trading binary options over the Internet.

According to the SEC’s order issued Thursday against EZTD Inc., not only did the firm fail to register the binary options or register as a broker-dealer to legally sell the investment to U.S. investors in the first place, but it failed to disclose on its trading platforms that there was significantly greater potential for investors to lose rather than earn money. 

The SEC finds that EZTD instead made statements that extolled the profitability of trading binary options, calling it a “highly profitable trading platform” and “an extremely lucrative avenue for individuals who are looking to see an increase in income.”

The SEC’s order finds that less than 3% of the nearly 4,000 U.S. investors who opened accounts with EZTD actually made any profit on their investment.

“EZTD’s revenues were largely derived from customer trading losses, yet EZTD emphasized the profitability of trading in binary options,” said Stephanie Avakian, Deputy Director of the SEC’s Division of Enforcement, in a statement. “Companies dealing in binary options must disclose more than general statements about investment risk so investors in these instruments understand that the odds are stacked against them.”

Without admitting or denying the findings, EZTD agreed to forfeit approximately $1.5 million in revenues obtained from U.S. customers and pay a $200,000 penalty.  EZTD no longer sells binary options in the U.S. market.

The SEC also issued an investor alert detailing red flags that signal binary options fraud and warning investors to never put in more money in an attempt to win back money they lost, which was not an issue in the EZTD matter. 


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