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Ex-Merrill Broker to Pay $5M Over Excessive Commissions, Fees: Enforcement

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A former Merrill Lynch broker agreed to pay more than $5 million to settle charges with the Securities and Exchange Commission that he schemed to increase his personal income by obtaining excessive commissions and fees from investors.

According to the SEC’s complaint, Merrill paid financial advisors a portion of the commissions, fees or other revenue they generated in customer and client accounts. The SEC alleges that Thomas Buck represented to certain customers with commission-based accounts that the total annual commissions they paid would not exceed certain limits, and then he traded in those accounts and generated commissions that exceeded the amounts he promised.

According to the SEC’s complaint, Buck received more than $2.5 million in excessive commissions and fees from at least 50 retail customers and investment advisory clients in a scheme that lasted at least three years.

The SEC alleges that Buck failed to inform the customers that their total annual commissions were exceeding the promised limits and falsely represented to several customers that their total annual commissions were within the promised limits.

According to the SEC’s complaint, Buck also intentionally failed to inform the customers that a fee-based option could be cheaper compared to the total annual commissions being paid based on trades executed in an account. The SEC also alleges that Buck impermissibly exercised discretion by placing trades in the accounts of certain customers without authorization.

In the SEC settlement, Buck agreed to pay disgorgement of $2.56 million in ill-gotten gains plus interest of $297,000 and a penalty of $2.23 million.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Indiana unsealed criminal charges against Buck. Any restitution amount paid in the criminal case would be subtracted from the disgorgement amount owed in the SEC settlement.

‘Hamilton’ Ticket Ponzi Schemer Pleads Guilty to Securities Fraud

On Tuesday, Joseph Meli of New York City pleaded guilty in federal district court in Manhattan to securities fraud in connection with a Ponzi scheme involving purported resale of tickets to popular Broadway shows including “Hamilton” and concerts for artists such as Adele and Metallica. The criminal case arises from the same conduct alleged in two SEC parallel civil enforcement actions filed against Meli earlier this year.

Meli was arrested on fraud charges in January. Meli had provided investors with fake agreements containing fraudulent signatures that claimed to show Meli’s company had agreements with various production and management companies to purchase large blocks of tickets.

Meli is scheduled to be sentenced in January 2018.

In January and September, the SEC filed two enforcement actions against Meli in federal district court. The first complaint was also fied against Matthew Harriton of New York. According to the SEC, Meli and others solicited investments for the bulk purchase and resale of tickets to events including the Broadway musical “Hamilton,” Adele and Metallica concerts, a concert festival known as Desert Trip (featuring The Rolling Stones, Bob Dylan, Paul McCartney and other artists), and the Broadway play “Harry Potter and the Cursed Child.”

The majority of the more than $97 million raised from investors was allegedly used to make Ponzi payments to prior investors and to enrich Meli, Harriton, and Meli’s wife and mother. Meli’s wife and mother are both named as relief defendants, along with three of Meli’s companies and two of Harriton’s companies, based on these parties’ alleged receipt of investor funds.

Day Trader Charged in Brokerage Account Takeover Scheme

The SEC charged a day trader based in the Philadelphia area with participating in a scheme to access the brokerage accounts of more than 100 unwitting victims and make unauthorized trades to artificially affect the stock prices of various companies.

The SEC alleges that Joseph Willner generated at least $700,000 in illicit profits by trading in the same securities in his own accounts and taking advantage of the artificial stock prices that resulted from the unauthorized trades placed from the victims’ accounts.

Willner’s activities were detected despite his efforts to disguise his real identity while communicating with at least one other individual through online direct messaging applications using a pseudonym, according to the SEC’s complaint. “Legal trading too hard” is among the online messages noted in the SEC’s complaint.  

To mask his payments to the other individual as part of a profit-sharing arrangement, Willner allegedly transferred proceeds of profitable trades to a digital currency company that converts U.S. dollars to Bitcoin and then transmitted the Bitcoins as payment. 

The SEC’s investigation is continuing.

Entertainment Company Owner Settles Fraud Charges

A Nashville, Tennessee resident who isn’t registered to sell investments agreed to settle charges that he defrauded investors in his company Global Maximus Productions, which purportedly produced pay-per-view entertainment and concerts.

The SEC alleges that Randall James promised investors significant profits and a return of their principal within a short period of time, claiming he would use their money to produce concerts and other events that would be live-streamed online and generate profits. According to the SEC’s complaint, James instead spent investor funds on his personal living expenses, including personal meals, housing and payments to his ex-wife.

Without admitting or denying the SEC’s allegations, James consented to the entry of a judgment permanently enjoining him from violating the charged provisions of the federal securities laws and ordering him to pay approximately $110,000 in disgorgement, $18,000 in prejudgment interest, and a $110,000 penalty for a total of about $238,000.

Firm Settles Charges of Illegal Short Selling in Advance of Stock Offerings

Investment advisory firm Millennium Management agreed to pay more than $630,000 to settle charges that it shorted U.S. stocks in companies planning follow-on offerings and then illegally bought shares in the follow-on offerings.   

An SEC investigation found that Millennium violated an anti-manipulation provision of the federal securities laws that prohibits short selling an equity security during a restricted period (generally five business days before a covered public offering) and then purchasing that same security through the offering. By illegally purchasing shares in the follow-on offerings, Millennium reaped approximately $287,000 in illicit profits.

Millennium must pay disgorgement of approximately $287,000 plus interest of $52,000 and a penalty of $300,000 for a total of $639,000.

SEC Fines Biotech Company $1.5M for Accounting Fraud

The SEC charged a Maryland-based biotech company and four former top executives with prioritizing revenue growth over lawful accounting and misleading investors in the process.

The SEC alleges that Osiris Therapeutics routinely overstated company performance and issued fraudulent financial statements for a period of nearly two years. According to the SEC’s complaint, the company improperly recognized revenue using artificially inflated prices, backdated documents to recognize revenue in earlier periods, and prematurely recognized revenue upon delivery of products to be held on consignment.  Osiris Therapeutics and its executives also allegedly used pricing data that they knew was false and attempted to book revenue on a fictitious transaction, among other accounting improprieties.

Osiris Therapeutics agreed to settle the charges without admitting or denying the allegations and must pay a $1.5 million penalty. The litigation continues against the four executives who led Osiris during the alleged period of accounting fraud from 2014 to 2015.

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