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Regulation and Compliance > Federal Regulation > SEC

Advisor Charged With Stealing $9M From Elderly Woman’s Foundation: Enforcement

By Emily Zulz

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The Securities and Exchange Commission charged a New York-based investment advisor with defrauding a nonprofit charitable foundation out of $9 million.

The SEC alleges that John Rogicki, managing director and chief compliance officer of Train Babcock Advisors LLC, has been stealing funds from the charity for a dozen years to purchase real estate and pay for his own lavish lifestyle.

According to the SEC’s complaint, the charitable foundation was established by an elderly woman to donate her estate to health and education causes. Rogicki has served not only as investment advisor to the charitable foundation but also as its president and a trustee, and he allegedly took advantage of his roles by liquidating securities positions in the foundation’s advisory account and transferring the money for his personal benefit.

The SEC’s complaint seeks a permanent injunction, disgorgement and prejudgment interest, and penalties against Rogicki.

In a parallel action, the Manhattan District Attorney brought criminal charges against Rogicki.

Massachusetts Advisor Charged With Fraud, Fiduciary Breach

Massachusetts’ top securities regulator, Commonwealth Secretary William Galvin, charged a Waltham-based investment advisor and his firm with engaging in fraudulent conduct, acting dishonestly and unethically and breaching their fiduciary duties.

The complaint alleges that Nicklaus J. Moser and Moser Capital Management LLC routinely made false and misleading statements to current and potential investors.

While principal of Moser Capital Management, Moser set up venture capital funds for the sole purpose of raising capital for two Massachusetts startup companies. Moser raised capital for those funds – Moser Capital Fund LLC and Moser Capital Fund II LLC – in part by soliciting his own advisory clients. Moser frequently misled potential investors in an effort to entice them into investing, and continued to mislead investors in order to convince them to continue investing when the companies were unable to repay them, the complaint alleges.

The complaint goes on to claim that Moser, who was a sales representative of a company which sold products to the two startups, failed to disclose to investors his own financial incentives in keeping the businesses afloat. Moser earned a commission for product sales made to the companies.

“My Securities Division is the sole regulator of state registered investment advisors and we will not sit idly by while an advisor misleads investors to entice them to invest in a startup,” Galvin said in a statement. “This is a troubling example of an abuse of trust and breach of fiduciary duty. An advisor who puts his interest ahead of his clients cannot continue to do business in the commonwealth.”

According to the complaint, in addition to falsely claiming prominent technology businesses were customers of the companies and incorrectly stating that millions of dollars of funding was available to one of the companies, Moser also informed investors that funds were being used to build products for large contracts. In fact, the complaint states that those funds were used by the company to “pay off its business debts; to loan a [company] executive over $100,000; to pay over $45,000 of bonuses to [company] executives in 2016; and to spend over $76,000 on grocery deliveries, airfare, restaurants and hotels.”

The complaint seeks a permanent cease and desist order, censure, revocation of investment advisor registration, disgorgement of all proceeds received as a result of the alleged wrongdoing, restitution to investors and an administrative fine.

Cetera to Pay Restitution for Failing to Provide Sales-Charge Waivers to Charities, Retirement Plans

Cetera Financial Specialists was censured and required to provide the Financial Industry Regulatory Authority with a plan to remediate eligible customers who qualified for, but did not receive, the applicable mutual fund sales-charge waiver, according to FINRA’s October disciplinary actions.

As part of this settlement, the firm agreed to pay restitution to eligible customers, which is estimated to total approximately $572,000 (the amount eligible customers were overcharged, plus interest).

Cetera Investment Services was also censured and required to provide FINRA with a plan to remediate eligible customers who qualified for, but did not receive, an applicable mutual fund sales-charge waiver. As part of this settlement, the firm agreed to pay restitution to eligible customers, which is estimated to total approximately $1.4 million (the amount eligible customers were overcharged, plus interest).

Both firms will also ensure that retirement and charitable waivers are appropriately applied to all future transactions.

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 who 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.

FINRA Fines Morgan Stanley for Supervisory, Training Deficiencies

Morgan Stanley was censured; fined $500,000; and ordered to pay $103,000 plus interest in restitution to investors, according to FINRA’s October disciplinary actions.

FINRA has not imposed undertakings in this matter because the firm has addressed the supervisory and training deficiencies FINRA identified during its reviews.

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it routinely failed to show the correct order receipt time and/or execution on brokerage order memoranda for trades in National Market System (NMS) stock executed through the firm’s “verbal trade” process by its preferred securities trading desk.

The findings stated that the firm routinely failed to report the correct execution time to the FINRA Trade Reporting Facility (TRF) for trades in NMS stocks executed through the firm’s “verbal trade” process by its preferred securities trading desk. In addition, the firm failed to transmit such trades to the TRF within the time required by FINRA Rule 7230A.

SEC Announces Whistleblower Award of More Than $1 Million

The SEC announced that a whistleblower has earned an award of more than $1 million for providing the SEC with new information and substantial corroborating documentation of a securities law violation by a registered entity that impacted retail customers.   

“Today’s award reflects the impact that whistleblower information can have in uncovering violations that harm the retail investor,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “We welcome high-quality information about potential securities-law violations from those in and outside a company.”   

More than $162 million has been awarded to 47 whistleblowers. 

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. 

SEC Files Fraud Charges Against Microcap Company and Its Founder

The SEC charged a microcap company and its founder with fraud for painting a misleading picture of the company’s finances that deceived the investing public about its true financial condition as well as its technology.

The SEC’s complaint alleges that Accelera Innovations Inc.’s public filings included the revenues of a separate company that it did not own or control and, as a result, Accelera improperly inflated its annual revenue by up to 90%.

In addition, the complaint alleges that Accelera portrayed itself as a provider of software when, in reality, it was not providing software to anyone. Geoffrey Thompson, Accelera’s founder, allegedly signed Accelera’s annual reports. The complaint also alleges that Thompson, acting through Accelera and Synergistic Holdings LLC, sold approximately $1.7 million worth of Accelera stock to investors, and that the sale was not registered or subject to any exemption from registration.

The SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains, civil penalties, an officer-and-director bar against Thompson, and penny stock bars against Thompson and Synergistic.

The SEC separately charged John Wallin, Accelera’s CEO and chief financial officer, with signing certifications as to the accuracy of Accelera’s Forms 10-K and 10-Q that falsely attested that he had reviewed Accelera’s financial statements when he had not.

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