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Regulation and Compliance > Federal Regulation > SEC

Brokerage Charged With Ignoring Signs of Pump-and-Dump Scheme: SEC Enforcement

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The Securities and Exchange Commission announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer. 

The SEC’s Enforcement Division alleges that the firm, formerly named Meyers Associates L.P., failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who were separately charged by the SEC with conducting a pump-and-dump scheme. 

The SEC’s Enforcement Division alleges that Meyers Associates and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts. 

“The SEC’s Broker-Dealer Task Force AML initiative is focused precisely on the conduct charged against Meyers Associates, which we allege systematically flouted its obligations under the securities laws to report suspicious activity,” said Andrew M. Calamari, director of the SEC’s New York Regional Office and co-chair of the Enforcement Division’s Broker-Dealer Task Force.  

According to the SEC, customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm. 

The SEC’s Enforcement Division further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available. 

Rather than conduct a reasonable inquiry into the deposits, Meyers Associates allegedly accepted registration exemption claims by Barton and Goode at face value.

“We allege that when other brokerage firms were rejecting similar deposits by Barton and Goode, Meyers Associates not only effectuated their illegal stock sales but then failed to report them as required by law,” Calamari said in a statement.

The matter pertaining to Meyers Associates and Telfer will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.

Meanwhile, the SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo and Justin Sindelman. The complaint alleges they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices.

Without admitting or denying the allegations, Barton, Goode and Briggs agreed to settle the charges and consented to court orders requiring them to pay disgorgement plus interest and penalties totaling more than $8.7 million. Manzo agreed to admit wrongdoing and pay more than $95,000 to settle the charges. The litigation continues against Sindelman.

Morgan Stanley, Citigroup Charged With Misleading Investors About Forex Trading Program

Morgan Stanley Smith Barney and Citigroup Global Markets have agreed to pay more than $2.96 million apiece to settle the SEC’s charges that they made false and misleading statements about a foreign exchange trading program they sold to investors. According to the SEC’s orders, Citigroup held a 49% ownership interest in Morgan Stanley Smith Barney at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as ”CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011. 

The SEC’s orders find that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade. The undisclosed leverage and markups caused investors to suffer significant losses.

SEC Announces $7 Million Whistleblower Award

The SEC awarded more than $7 million to three whistleblowers who helped the SEC prosecute an investment scheme.

One whistleblower provided information that was a primary impetus for the start of the SEC’s investigation. That whistleblower will receive more than $4 million. Two other whistleblowers jointly provided new information during the SEC’s investigation that significantly contributed to the success of the SEC’s enforcement action. Those two whistleblowers will split more than $3 million.

“Whistleblowers not only helped us open the investigation but provided critical information after the investigation was already underway,” Jane Norberg, chief of the SEC’s Office of the Whistleblower, said in a statement.

SEC Uncovers Cherry-Picking Scheme, Charges Investment Advisor Behind It

A Massachusetts-based investment advisor agreed to be banned from the securities industry after the SEC uncovered an illegal cherry-picking scheme through its data analysis used to detect suspicious trading patterns.

The SEC filed fraud charges in federal district court against Michael J. Breton and his firm Strategic Capital Management, alleging they defrauded clients out of approximately $1.3 million. Breton allegedly placed trades through a master brokerage account and then allocated profitable trades to himself while placing unprofitable trades into the client accounts. 

Breton and his firm agreed to a partial settlement subject to court approval. Monetary sanctions would be determined at a later date.  In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Breton.

SEC Charges Two Former Och-Ziff With Bribing African Officials

The SEC charged two former executives at Och-Ziff Capital Management Group with being the driving forces behind a far-reaching bribery scheme that violated the Foreign Corrupt Practices Act (FCPA).

Och-Ziff and two other executives previously settled charges against them in the case.

The SEC’s complaint alleges that Michael L. Cohen, who headed Och-Ziff’s European office, and an investment executive on Africa-related deals, Vanja Baros, caused tens of millions of dollars in bribes to be paid to high-level government officials in Africa. 

Their alleged misconduct induced the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds. Cohen and Baros also allegedly directed illicit efforts to secure mining deals to benefit Och-Ziff by directing bribes to corruptly influence government officials in Libya, Chad, Niger, Guinea and the Democratic Republic of the Congo.

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