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Regulation and Compliance > Federal Regulation > SEC

SEC Fines Insurance Exec for Fraud; Says He Used Proceeds to Fund Dog Rescue Charity

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The SEC charged Connecticut resident David Haddad and two companies he operates in connection with a fraudulent scheme to raise funds from retail investors.

Haddad and the two companies have offered to settle the case by, among other things, agreeing to pay a total of over $1 million, which includes disgorgement of money Haddad took in from investors and used for his own personal purposes.

The SEC’s complaint alleges that Haddad operated two companies in the reinsurance industry, Trafalgar Square Risk Management LLC and New England RE LLC.

Haddad allegedly raised money from investors through the offer and sale of unregistered securities in both companies, and raised at least $2.5 million from at least 29 separate investors.

According to the SEC’s complaint, Haddad led investors to believe that their funds would be used to build and grow Trafalgar and New England RE when, in fact, Haddad diverted a significant portion of the investors’ money for his own purposes, including the purchase of multiple homes, art and antiques, entertainment, and expenses of a dog rescue charity founded by Haddad. Haddad also used some investors’ money to make Ponzi-like payments to other investors. The complaint alleges that the money Haddad used to support his lifestyle far exceeded Trafalgar’s revenues.

Without admitting or denying the allegations of the complaint, Haddad, Trafalgar, and New England RE have consented to the entry of final judgments permanently enjoining them from violations of these laws.

Haddad and Trafalgar also have agreed to pay, jointly and severally, a total of $619,382 in disgorgement plus prejudgment interest of $25,131. Haddad and New England Re have agreed to pay, jointly and severally, a total of $269,080 in disgorgement, plus prejudgment interest $2,592. In addition, Haddad has agreed to pay a civil monetary penalty of $181,071 and has consented to the imposition of a permanent bar prohibiting him from acting as an officer or director of a publicly traded company.

SEC Charges Municipal Advisor and Its Principal With Defrauding Mississippi City

The SEC filed a civil injunctive action alleging that an Atlanta-based municipal advisor and its principal defrauded the City of Rolling Fork, Mississippi, and failed to disclose certain related-party payments in connection with a municipal bond offering.

In its complaint, the SEC alleges that Malachi Financial Products, Inc. and its principal, Porter Bingham, fraudulently overcharged Rolling Fork for municipal advisory services related to an October 2015 municipal bond offering.

Malachi is registered as a municipal advisor with both the SEC and Municipal Securities Rulemaking Board. According to the complaint, after the offering closed, Malachi and Bingham submitted two invoices to the bond trustee for payment. The SEC alleges that one of those invoices was fraudulent, because it was for services that Malachi and Bingham did not perform and the city did not authorize. The complaint also alleges that Bingham failed to disclose to the city that he had accepted payments totaling $2,500 from Anthony Stovall, an employee of a municipal underwriter, shortly before he and Malachi recommended that the city hire Stovall’s firm to underwrite the bond offering.

The complaint alleges that the city ultimately hired that underwriting firm based on Bingham and Malachi’s recommendation. Finally, the complaint alleges that Malachi and Bingham violated their fiduciary duty to the city.

In separate administrative proceedings, the Commission entered a settled administrative order against Stovall.

SEC Charges California-Based Attorney With Securities Registration Violations

The U.S. District Court for the Southern District of Florida yesterday entered final judgment in a SEC case against California-based attorney Owen Naccarato for violating the securities registration provisions of the federal securities laws.

The SEC’s complaint alleges that in September 2013, Naccarato issued two opinion letters improperly concluding that Global Digital Solutions Inc., a Florida-based microcap company, was not a shell company and that certain shareholders were not affiliates of Global Digital.

The SEC’s complaint further alleges that Naccarato improperly instructed Global Digital’s transfer agent to remove the restrictive legends from these shareholder certificates. Many of the shares were then sold in unregistered public distributions.

Naccarato consented to the entry of the Final Judgment without admitting or denying any of the allegations in the Commission’s complaint. The Final Judgment orders Naccarato to pay $1,000 in disgorgement, $127 in prejudgment interest, and a civil penalty of $10,000.

The final judgment also prohibits Naccarato, for a period of five years, from directly or indirectly providing, or receiving compensation from the provision of, professional legal services to any person or entity in connection with the offer or sale of securities.

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