The Securities and Exchange Commission charged a former Bitcoin-denominated platform and its operator with operating an unregistered securities exchange and defrauding users.
The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities.
According to the SEC’s complaint, BitFunder and its founder Jon Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their Bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 Bitcoins.
The SEC also alleges that Montroll sold unregistered securities that purported to be investments in the exchange and misappropriated funds from that investment as well.
“Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens or coins, must register with the SEC or operate pursuant to an exemption,” Marc Berger, director of the SEC’s New York Regional Office, said in a statement. “We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws.”
The SEC’s complaint charges BitFunder and Montroll with violations of the antifraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctions and disgorgement plus interest and penalties.
In a parallel criminal case, the U.S. Attorney’s Office for the Southern District of New York filed a complaint against Montroll for perjury and obstruction of justice during the SEC’s investigation.
SEC Charges Investment Advisor and Senior Officers in Fraudulent ‘Cherry-Picking’ Scheme
The SEC filed a complaint against Orange County-based Strong Investment Management and its president and sole owner, Joseph Bronson, for operating a “cherry picking” scheme that defrauded Strong’s clients.
The complaint also alleges that John Engebretson, Bronson’s brother and the former chief compliance officer of Strong, abdicated his compliance responsibilities and ignored numerous “red flags” raised during the course of the fraudulent scheme.
The complaint alleges that for more than four years, Bronson traded securities in Strong’s omnibus account but delayed allocating the securities to specific client accounts until he had observed the securities’ performance over the course of the day.
Bronson reaped substantial profits at his clients’ expense by “cherry picking” the trades, allocating the profitable trades to himself and the unprofitable trades to Strong’s clients.
The complaint also alleges that Strong and Bronson misrepresented their trading and allocation practices in the firm’s Forms ADV, including by falsely stating that all trades would be allocated in accordance with pre-trade allocation statements and that the firm did not favor any account, including those of the firm’s personnel.
The SEC also alleges that Engebretson failed in his role as chief compliance officer to ensure that Strong’s policies and procedures regarding trade allocations were implemented and repeatedly disregarded “red flags” relating to Strong’s allocation practices.
Advisor’s Wife Ordered to Pay Over $500,000 in Fraud Case
A complaint, filed by the SEC in January 2015, charged investment advisor Daniel Thibeault and others with fraud for misappropriating money from an investment fund. The complaint named Thibeault’s wife, Shawnet Thibeault, as a relief defendant.
According to the complaint, she received some of the money that had been misappropriated from investors.
A final judgment entered on Feb. 16 against Shawnet Thibeault orders her to disgorge over $500,000.
According to the SEC, Daniel Thibeault misappropriated money from an investment fund that he was managing. Specifically, the SEC alleged that Daniel Thibeault and his companies were the investment advisers to the GL Beyond Income Fund, and that they misappropriated at least $15 million of the fund’s money.
The complaint alleged that Daniel Thibeault and the other defendants, not including Shawnet Thibeault, designed a scheme to conceal their misappropriation of millions of dollars. The scheme involved creating fictitious loans to steal money from the fund, and to report those fake loans as assets of the fund.
The final judgment against Shawnet Thibeault orders her to pay disgorgement of $468,236, representing money she received as a result of the violations alleged in the complaint, along with prejudgment interest of $49,826, for a total of $518,062.
FINRA Sanctions BD President for Failing to Supervise Inexperienced CCO
The president of a broker-dealer was fined and barred by FINRA for failing to supervise an inexperienced and ineffective chief compliance officer.
From Aug. 31, 2012 through Jan. 8, 2016, while serving as Accelerated Capital Group’s president, Wayne Ivan Miiller failed to reasonably supervise the firm’s chief compliance officer and direct supervisor for all registered representatives in the firm’s Irvine, California branch office.
According to FINRA, that CCO failed to properly monitor and halt “excessive, unsuitable, and unauthorized transactions in customer accounts” by a registered rep. The CCO also had difficulty analyzing the firm’s trade blotter and mutual fund reports, according to FINRA.
“As Accelerated’s president, Miiller was ultimately responsible for supervision at the firm,” FINRA states in the letter.
FINRA’s sanctions for Miiller include a suspension from association with any FINRA member in all principal capacities for a period of six months and a $10,000 fine.
— Check out FINRA Panel Rules in Favor of Farmer, Against Wells Fargo on ThinkAdvisor.