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Regulation and Compliance > Federal Regulation > SEC

SEC Charges Advisor in $1.4 Million Fraud Scheme: Enforcement

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The Securities and Exchange Commission charged an investment advisor with orchestrating an investment scheme over several years.

The SEC’s complaint alleges that Amrit J. S. Chahal used his company, Kane Capital Investment Group,  to fraudulently solicit approximately $1.4 million from about 50 individuals, including friends and family members, from at least February 2015.

According to the complaint, Chahal lured investors by falsely claiming to be an experienced and successful trader who could generate above-market returns for clients through a low-risk trading strategy. In reality, Chahal had substantially no experience working in the financial or securities industry or trading securities on behalf of clients.

The complaint further alleges Chahal initially invested client funds in a variety of investments, but suffered significant trading losses. According to the complaint, instead of disclosing the losses, Chahal lied to his clients about their investment returns, continued raising funds, then used the money for his personal benefit, including to pay for his luxury car, rent, travel, dining, and other living expenses, and to make Ponzi-like payments to earlier investors.

The SEC seeks a permanent injunction, disgorgement, and penalties. The U.S. Attorney’s Office for the Eastern District of Virginia also announced criminal charges against Chahal. The Commodities Futures Trading Commission also charged Chahal.

SEC Charges Businessman With Stealing Millions From a Pension Plan

The Securities and Exchange Commission charged a Memphis, Tennessee-area businessman with stealing approximately $5.7 million from a Pennsylvania company’s pension plan.

On three separate occasions between March 2015 and February 2016, John Jumper stole millions of dollars from Snow Shoe Refractories LLC’s pension plan, according to the SEC’s complaint.

Jumper allegedly forged documents, including fake Board of Directors resolutions, to steal the funds. Jumper allegedly used the stolen funds to capitalize other businesses he owned, to repay personal debts and, in one instance, to invest in another business that paid a significant fee to a broker-dealer that Jumper co-owned.

The U.S. Attorney’s Office for the Middle District of Pennsylvania announced parallel criminal charges against Jumper.

The SEC seeks disgorgement of ill-gotten gains plus interest, penalties and injunctive relief. The complaint also names Alluvion Securities LLC, American Investments Fund II LLC, Speedee Brakes LLC, Thousand Hills Capital LLC and Evertone Records LLC as relief defendants for the purpose of recovering stolen pension funds allegedly in their possession.

FINRA Fines LPL Over Brokered CDs

LPL Financial was censured and fined $375,000 by FINRA for failing to implement a supervisory system reasonably designed to ensure that its registered representatives were trained on all material risks and features of brokered certificates of deposit (CDs). According to FINRA, the firm also did not adequately disclosed all material risks and features of the brokered CDs to customers.

Because of the firm’s deficient supervisory system, one of the firm’s registered representatives made material misrepresentations to elderly customers regarding the limitations on the ability, upon death, of their estates to redeem their 20-year brokered CDs at par value. The elderly customers or their estates suffered losses of approximately $75,000 because they were unable to fully redeem the brokered CDs and had to sell the brokered CDs on the secondary market. The firm subsequently remediated these customers’ losses.

FINRA’s findings stated that in particular, the firm failed to take reasonable steps to ensure that its registered representatives or fixed income desk employees received or had meaningful access to issuer-prepared disclosure documents prior to their sales of these products.

In response to FINRA Notice to Members 02-69, the firm prepared and delivered to customers who purchased brokered CDs a generic CD disclosure statement that described the general risks and characteristics of brokered CDs. The firm, however, did not consistently provide its customers, prior to or at the time of sale, with issuer-prepared disclosure documents, despite the firm’s obligation to do so under its selling agreements with the brokered CD issuers, and did not otherwise have a process to disclose fully all material risks and features of the brokered CDs to customers.

SEC Charges CEO in Penny Stock Fraud Scheme

The SEC charged the CEO of a Chicago-area penny stock company with making false and misleading statements in the company’s SEC filings and press releases and with manipulating the company’s stock.

The SEC’s complaint against Andrew Kandalepas, the CEO of Wellness Center USA Inc., alleges that Kandalepas took $450,000 in unauthorized withdrawals from the company and then concealed his actions by causing Wellness to characterize his withdrawals as salary, prepayments or loans in false and misleading Forms 10-K and 10-Q. The complaint further alleges that Kandalepas caused the company to issue false and misleading press releases touting nonexistent sales of medical devices by a Wellness subsidiary.

According to the complaint, Kandalepas also manipulated the market for Wellness stock through secret trading in a friend’s brokerage account and pocketed more than $130,000 from his secret trading. According to the complaint, Kandalepas coordinated trading with Matthew T. Mushlin, who Kandalepas hired as an unregistered broker to solicit investments in Wellness through private placement agreements.

The SEC is seeking a permanent injunction, disgorgement including prejudgment interest, a civil penalty, an officer-and-director bar, and a penny stock bar.

SEC Fines Advisor for Misleading Advertisements

The SEC censured and fined an investment advisor and its principal for misleading advertisements that utilized hypothetical backtested performance.

According to the SEC, the advisor continually updated its models but failed to fully disclose that the models’ outperformance resulted from these post-hoc revisions. The SEC alleges that the respondents revised the models to specifically account for unforeseen events such as market movements.

The SEC charged the firm and the principal, who also acted as the chief compliance officer, with engaging in manipulative practices and for failing to implement a reasonable compliance program.

As part of the settlement, the firm agreed to retain a dedicated chief compliance officer and an outside compliance consultant.


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