Cetera Advisor Networks and Cetera Advisors were both censured and required to provide a plan to FINRA to remediate eligible customers who qualified for, but did not receive, an applicable mutual fund sales-charge waiver, according to FINRA’s July disciplinary actions.
As part of Cetera Advisor Networks’ settlement, the firm agreed to pay restitution to eligible customers, which is estimated to total $1,911,080 (the amount eligible customers were overcharged, inclusive of interest). And, as part of Cetera Advisors’ settlement, the firm agreed to pay restitution to eligible customers, which is estimated to total $628,040 (the amount eligible customers were overcharged, inclusive of interest).
Without admitting or denying the findings, both firms consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge.
The findings stated that these eligible customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses.
These sales disadvantaged eligible customers by causing the customers to pay higher fees than they were actually required to pay.
The findings also stated that the firms failed to reasonably supervise the application of sales-charge waivers to eligible mutual fund sales.
The firms “relied on its financial advisors to determine the applicability of sales-charge waivers, but failed to maintain adequate written policies or procedures to assist financial advisors in making this determination,” according to FINRA.
In addition, FINRA says, the firm failed to adequately notify and train its financial advisors regarding the availability of mutual fund sales-charge waivers for eligible customers. The firm also failed to adopt adequate controls to detect instances in which they did not provide sales-charge waivers to eligible customers in connection with their mutual fund purchases.
As a result of Cetera Advisor Networks’ failure to apply available sales-charge waivers, the firm estimates that eligible customers were overcharged by at least $1,666,404 for mutual fund purchases made since July 1, 2009. And as a result of Cetera Advisors’ failures, the firm estimates that eligible customers were overcharged by at least $553,398 for mutual fund purchases made since July 1, 2009.
SEC Bars Lawyer Who Committed Fraud
The Securities and Exchange Commission barred a New York-based attorney from appearing or practicing before it and acting as an officer or director of a public company after finding that he made false and misleading statements in corporate filings.
The SEC’s order finds that David Lubin committed fraud while serving as a director and corporate counsel of Entertainment Art, a public company in which Lubin also was a large shareholder. Lubin negotiated the sale of all of the outstanding stock of Entertainment Art, including both restricted and previously registered shares that were purportedly “free trading,” to an acquaintance interested in purchasing shell companies.
Absent a valid exemption, common ownership of all of the shares of a public company would require the owner to register the shares for resale to the public. According to the SEC’s order, Lubin fraudulently misrepresented in Entertainment Art’s corporate filings that the purportedly free-trading shares had not been purchased by the acquaintance. This left the false impression that those shares remained immediately available for public resale. During the next two years and until he left the company, Lubin drafted and signed SEC filings that continued to lie about the true ownership of the company’s stock.
According to the SEC’s order, soon after the company was renamed Biozoom, more than 14 million shares were resold to the public in an illegal unregistered distribution for illicit proceeds of $34 million. The SEC froze assets from the unregistered sales in 2013.
The SEC’s order prohibits Lubin from representing clients in SEC matters, including investigations, litigation, or examinations, and from advising clients about SEC filing obligations or content. The SEC ordered a public hearing before an administrative law judge to prepare an initial decision determining what, if any, disgorgement or monetary penalties are in the public interest.
The U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Lubin.
SEC Files Fraud Charges Against Alleged Market Manipulators
The SEC announced fraud charges against two California men and a company behind an alleged scheme to manipulate the stock prices of two shell companies.
The SEC alleges that Troy Flowers and his partner Sean Nevett illegally concealed their control and ownership of Licont Corp. and Artec Global Media by using multiple accounts that they controlled in the names of other people and entities. They then allegedly created the false appearance of active trading by making manipulative trades from those accounts to inflate the stock prices.
According to the SEC’s complaint, Flowers and Nevett subsequently dumped their own shares into the open market at the expense of innocent investors, who were left with stock that is virtually worthless.
The SEC alleges that Flowers, his company Fruition Inc. (previously called Seacoast Advisors), and Nevett reaped approximately $3.8 million in illegal proceeds from the scheme.
The SEC’s complaint seeks relief including permanent injunctions, disgorgement of ill-gotten gains plus interest, penalties and penny stock bars.
Dual Registrant Failed to Disclose Revenue Sharing
A large dual registrant agreed to pay more than $550,000 in disgorgement, interest and fines for failing to disclose mutual fund revenue sharing received from its clearing broker.
According to the SEC’s order, KMS, a dually-registered investment advisor and broker dealer, failed in its capacity as an investment advisor to disclose to its advisory clients compensation it received from a third party broker-dealer for certain investments KMS selected for its advisory clients.
The clearing broker agreed to share a percentage of revenues received from mutual funds participating in its no-transaction-fee (NTF) mutual fund program. According to the SEC, these payments provided a financial incentive for KMS to favor the mutual funds in the NTF program over other investments when giving investment advice to its advisory clients, and thus created a conflict of interest.
The SEC faults KMS for failing to disclose the revenue sharing or the conflict of interest in its Form ADV from 2003 to 2014. The SEC also claims best execution violations in addition to violations of the compliance rule (206(4)-7) for failing to adopt policies and procedures ensuring proper disclosure.
SEC Obtains Final Judgment Against Officer of Pyramid Scheme Targeting Latino Community
The final judgment, entered on consent by a federal district court in Boston, imposes a conduct-based injunction, and orders Labriola to pay approximately $25,000 in disgorgement and prejudgment interest.
As part of the settlement, Labriola admitted that he was responsible for TelexFree’s relationships with its promoters, ran numerous training conferences, and that he was one of the main public faces of TelexFree, providing periodic “corporate updates” and appearing in other promotional videos that were posted on YouTube.
The SEC previously obtained a final judgment by consent against a promoter of TelexFree, who also was ordered to jail for civil contempt arising from his repeated violations of court orders. Two other defendants in the SEC’s action – James M. Merrill, the co-owner and president of TelexFree, and Carlos N. Wanzeler, the co-owner and treasurer of TelexFree – were charged criminally. Merrill pled guilty to the criminal charges and was sentenced to six years’ imprisonment. Wanzeler is a fugitive from justice.
FTC Charges Debt Collection Scheme with Posing as Attorneys to Take Consumers’ Money for Phantom Debts
The Federal Trade Commission charged a debt collection operation with taking people’s money for fake debts they did not owe by posing as lawyers and falsely threatening to sue or have them arrested if they did not pay.
Hardco Holding Group LLC, S&H Financial Group Inc., Daryl M. Hall and Dequan M. Sicard are charged with violating the FTC Act and the Fair Debt Collection Practices Act. A federal court temporarily halted the operation and froze its assets at the request of the FTC, which seeks to end the practices.
According to the FTC, the defendants’ collectors called people without identifying themselves as debt collectors, said a lawsuit or criminal action had been filed or soon would be filed against them, and gave a phony “case number” and a phone number to call. Those who responded were told the callers were attorneys or were calling from a law firm.
The FTC also alleges that to coerce some people into paying the phantom debts, the defendants threatened them with prison time or claimed police would come to their house to arrest them.
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