Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
ThinkAdvisor

Regulation and Compliance > Federal Regulation > SEC

Former F-Squared CEO to Pay $13M for Misleading Investors: Enforcement

X
Your article was successfully shared with the contacts you provided.

A federal judge ordered the co-founder and former CEO of investment management firm F-Squared Investments to pay more than $13 million after a federal jury found him liable for making false and misleading statements to investors as the public face of F-Squared.

The Securities and Exchange Commission charged Howard Present and F-Squared in 2014 with misleading investors about the AlphaSector strategy, the flagship product of F-Squared, which Present launched in the wake of the financial crisis. F-Squared agreed to pay $35 million and admit wrongdoing to settle the agency’s charges. After a three-and-a-half week trial, the jury deliberated for less than one day before finding Present liable on all of the agency’s charges against him.

On March 22, the court entered a final judgment and ordered Present to pay disgorgement of $10.8 million plus interest of $1.37 million, and a $1.57 million penalty.

The court found that, based on the evidence presented at trial, “Present’s conduct was egregious,” and that his “misstatements were consistent in message, broadly disseminated and increasingly bold.”

False EDGAR Filer Sentenced to 2 Years in Prison for Fitbit Manipulation Scheme

Robert Murray, a defendant in a pending SEC case, was sentenced to two years imprisonment in connection with a scheme to manipulate Fitbit securities through false filings on the SEC’s EDGAR system. Murray pleaded guilty on Nov. 7.

The criminal charges against Murray arose from the same conduct alleged in the complaint the SEC filed on May 19, the same day the criminal charges were announced.

According to the SEC’s complaint, Murray allegedly purchased Fitbit call options just minutes before a fake tender offer that he orchestrated was filed on the SEC’s EDGAR system purporting that a sham company sought to acquire Fitbit’s outstanding shares at a substantial premium.

Fitbit’s stock price temporarily spiked when the tender offer became publicly available on Nov. 10, 2016, and Murray sold all of his options for a profit of approximately $3,100. Murray took steps to conceal his identity and actual location, including using an alias to create an email account and using an IP address registered to a company located in another state.

The SEC’s action was stayed pending the outcome of the criminal case.

SEC Stops Ponzi Schemer Targeting Retail Investors

The SEC announced charges and a preliminary injunction and asset freeze against Niket Shah, a New Jersey resident who stole more than $250,000 in a Ponzi scheme in which his friends and coworkers invested.

Based on investor complaints, the SEC moved quickly to investigate and charge Shah. According to the SEC’s complaint, Shah used Spark Trading Group LLC to defraud more than 15 investors into contributing hundreds of thousands of dollars to two funds that Shah marketed. Shah obtained investments for the funds by lying about his success as a trader, Spark Trading’s returns, and how he intended to use investors’ money, including altering financial statements to make the funds appear profitable when they were actually losing money.

For instance the SEC alleges that Shah promised investors he would pay them monthly returns and guaranteed against losses. According to the complaint, Shah misused investor money for his own benefit and suffered substantial losses on the amounts actually invested. When investors sought their money back, he lied and said the money had been frozen by government agencies, including the SEC.

The SEC’s complaint charges Spark Trading and Shah with violations of the antifraud provisions of the federal securities laws. The SEC is seeking return of allegedly ill-gotten gains with interest and civil money penalties.

SEC Fines Operators of Private Real Estate Fund for Fraud

The SEC settled charges against the operators of a real estate investment business who engaged in a years-long scheme to bilk hundreds of investors, including many retail investors, out of millions of dollars.

The SEC alleges that from 2012 through 2016, Tobias Preston, his brother, Charles Preston, and his son, Caleb Preston, along with their investment advisory entity, McKinley Mortgage Co. LLC, raised more than $66 million from approximately 300 investors, most of whom were retail investors.

According to the SEC, they falsely stated that investments in their fund, Alaska Financial Com. III LLC (AFC III), were secure and that AFC III earned high returns from its portfolio.

In reality, AFC III has been insolvent and unable to generate sufficient revenue to meet its interest obligations for years. According to the SEC, although a portion of the raised funds were invested as promised to investors, Tobias Preston misused more than $17 million to fund personal businesses and to pay for personal expenses, and McKinley misused an additional $14 million to pay for its own operational expenses.

The SEC also alleges that Charles Preston, Caleb Preston, and Accounting Manager Laura Sanford helped hide the fraud by preparing or distributing investor materials with false information and concealing information from AFC III’s auditors.

The SEC’s complaint charges violations of the antifraud and registration provisions of the federal securities laws. Without admitting or denying the SEC’s allegations, all defendants agreed to permanent injunctions against future violations.

The Prestons and McKinley agreed to repay the almost $30 million they improperly received that has not already been returned to AFC III and to the appointment of new management at McKinley, AFC III and their affiliates.

Tobias Preston also will be ordered to return assets he improperly acquired and to pay a $2.5 million penalty. Charles Preston and Caleb Preston agreed to pay penalties of $425,000 and $150,000, respectively. The settlements are subject to court approval.

— Related on ThinkAdvisor:


NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.