The Securities and Exchange Commission filed charges to stop an alleged fraud by a Massachusetts businessman misusing investments intended for the development of cancer diagnostic tests to instead pay personal expenses and fund his fiancée’s restaurant businesses.
According to the SEC’s complaint, Patrick Muraca established two pharmaceutical development companies and raised nearly $1.2 million by representing to investors that their money would be used to develop products to detect cancer and other diseases. The SEC has traced the flow of investor funds into Muraca’s personal bank account and alleges that at least $400,000 has been used to pay rent for the restaurants and fund other purchases by Muraca, including payments to a casino, automotive shop and cigar shop.
The SEC alleges that investors were never informed of the alternative uses of their investments in NanoMolecularDX LLC and MetaboRX LLC, including the fact that Muraca characterized the businesses as “Serving Food; Restaurant” in separate documents he has filed with the commonwealth of Massachusetts to do business in the state.
The SEC obtained a court order freezing the assets of Muraca and his companies.
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“As alleged in our complaint, we’re intervening to protect investors because Muraca has veered from his stated intentions and has been using their money for purposes other than the fight against cancer and other diseases,” said Paul Levenson, Director of the SEC’s Boston Regional Office, in a statement.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Muraca.
PCAOB Fines PwC $1M Over Merrill Compliance Audit
The Public Company Accounting Oversight Board announced that it censured and imposed a $1 million civil penalty against PricewaterhouseCoopers LLP for violations in its examination and audit of Merrill Lynch’s compliance with the Securities and Exchange Commission’s Customer Protection Rule in fiscal 2014.
“An auditor’s attention to a broker’s compliance with the SEC’s Customer Protection Rule provides critical assurance that the business is protecting customer securities from liens by creditors of the broker,” said James R. Doty, PCAOB chairman. “PwC failed to fulfill its obligations during a period when Merrill Lynch exposed billions of dollars of customer assets to claims of its creditors.”
The SEC’s Customer Protection Rule requires a broker-dealer to hold certain customer securities in lien-free segregated accounts to protect them from creditor claims should the broker’s business fail. Merrill Lynch reported that it had complied with the rule in fiscal year 2014 and that its internal control over compliance with the rule was effective.
The Board found that, in February 2015, PwC issued audit and examination reports without obtaining sufficient evidence about Merrill’s compliance assertions, as required by PCAOB auditing and attestation standards.
In June 2016, the SEC found that for several years, including fiscal year 2014, Merrill Lynch held tens of billions of dollars of its customers’ fully paid and excess margin securities in accounts that were subject to liens by third parties, in violation of the Customer Protection Rule.
PwC consented to the Board’s order without admitting or denying the findings.
SEC Charges 2 in $17 Million Manipulation Scheme
The SEC announced fraud and other charges against two individuals and a related company for their roles in a manipulative trading scheme involving Liberty Silver Corp., a penny stock.
The SEC’s complaint alleges that Robert Genovese, a Canadian citizen; his company, B.G. Capital Group Ltd.; and Abraham “Avi” Mirman, the former head of investment banking at now-defunct New York broker-dealer John Thomas Financial (JTF), were involved in a scheme concerning Liberty Silver in which Genovese sought to increase dramatically the company’s share price and volume and sell millions of shares into the market.
According to the SEC’s complaint, between August and October 2012, Genovese schemed with Mirman to sell Liberty Silver shares to JTF’s customers in part by agreeing to loan $2 million indirectly to JTF without disclosing the loan to the customers. The complaint alleges that Genovese also touted Liberty Silver in newspaper articles while failing to disclose that he had paid for the articles, that he was dumping millions of shares of Liberty Silver stock, and the financial arrangements between himself and JTF. It further alleged that Genovese engaged in manipulative trading on a particular day, increasing Liberty Silver’s share price and creating the false appearance of liquidity and demand for Liberty Silver stock.
Stock Manipulator Fined for Pump-and-Dump Scheme
The SEC announced that an overseas stock manipulator has agreed to pay nearly $800,000 and be permanently barred from involvement in penny stocks after hiding his significant stake in a small oil & gas company while secretly funding a fraudulent promotional campaign that artificially boosted the company’s stock price before he dumped his shares.
SEC enforcement investigators uncovered the fraud by peeling back layer upon layer of shell companies and nominee owners to reveal that Joe Yiu Cheung controlled United American Petroleum Corp. (UAPC).
According to the SEC’s order, Cheung utilized an elaborate network of overseas bank and brokerage accounts mostly in bank secrecy jurisdictions to conceal his UAPC ownership. He also did not file required reports that would have publicly disclosed his burgeoning ownership of UAPC stock.