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Regulation and Compliance > Federal Regulation > SEC

SEC Charges Rep in $8 Million Scam Targeting Retirees: Enforcement

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The Securities and Exchange Commission charged a former registered representative with defrauding long-standing brokerage customers in an $8 million investment scam.

According to the SEC’s complaint, Steven Pagartanis, who was affiliated with a registered broker-dealer, told some investors — including retirees who had been Pagartanis’ customers for many years — that he would invest their funds in either a publicly traded or private land development company.

“As part of the alleged scam, Pagartanis preyed on his customers’ trust, duping them to write checks payable to his own entity,” said Marc Berger, director of the SEC’s New York Regional Office, in a statement. “Regardless of how long investors have worked with their brokers, they should always confirm that recommended investments are approved for sale by their brokerage firm before transferring funds.”

In response to this, the SEC also issued an Investor Alert about warning signs that a broker may be offering investments outside of the broker’s firm.

According to the SEC, Pagartanis promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments. At Pagartanis’ direction, his investors wrote checks payable to a similarly named entity that was secretly controlled by Pagartanis.

In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers. To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies.

The SEC’s complaint, filed in federal district court in Brooklyn, charges Pagartanis with violating the antifraud provisions of the federal securities laws. The SEC is seeking a judgment ordering Pagartanis to disgorge his allegedly ill-gotten gains plus prejudgment interest, and to pay financial penalties.

The Suffolk County District Attorney’s Office also filed criminal charges against Pagartanis.

SEC Charges Investment Banker in Insider Trading Scheme

The SEC charged an investment banker with repeatedly using his access to highly confidential information in order to place illicit and profitable trades in advance of deals on which the bank was providing investment banking advisory services.

According to the SEC’s complaint, Woojae “Steve” Jung, an investment banking executive at a prominent investment bank, used sensitive client information in order to trade in the securities of 12 different companies prior to the announcement of market-moving events.

The SEC alleges that Jung used an account held in the name of a friend living in South Korea to place these illegal trades and generate profits of approximately $140,000 between 2015 and 2017. As alleged in the complaint, by using his friend’s brokerage account, Jung attempted to evade detection by skirting his employer’s requirements that he pre-clear his trades and that he use an approved brokerage firm that would have reported the trading to his employer.

The SEC’s complaint charges Jung with fraud and seeks disgorgement of allegedly ill-gotten gains, prejudgment interest, penalties and injunctive relief. The complaint also names Jung’s friend, Sungrok Hwang, as a relief defendant to have him disgorge illicit gains that Jung generated by trading in his brokerage account.

Former CFO of Investment Advisor to Pay $227,500 to Settle Fraud Case

The courts entered a final judgment against Perry Gruss, the former chief financial officer of D.B. Zwirn & Co. (DBZCO), a now defunct investment advisor. The judgement imposes a civil money penalty of $227,500.

The SEC’s complaint, filed in April 2011, says that Gruss aided and abetted DBZCO’s improper transfers of monies between its privately managed client funds, including transfers of $576 million to allow one of the client funds to make its investments, and transfers of $273 million to allow the same client fund to repay its revolving credit facility.

Separately, the SEC instituted settled administrative proceedings against Gruss that he be barred from association with any investment advisor with the right to apply for re-entry after three years.

Court Fines Florida Resident Charged With Market Manipulation Scheme

The U.S. District Court for the Middle District of Florida entered a judgment against Gregory Bercowy of St. Petersburg, Florida, in a case involving a scheme to manipulate the stock price of Aureus Inc., a penny stock company incorporated in Nevada.

Among other things, the court ordered Bercowy to pay a civil penalty of over $500,000.

The SEC’s complaint alleged that Bercowy, who is associated with a state-registered investment advisor, sold shares of certain Fortune 500 companies, including Abbott and Apple, in his relative’s brokerage account in order to buy more than 3 million shares of Aureus at a total cost of more than $2.8 million.

According to the SEC, while Bercowy was accumulating these shares of Aureus, he entered (and later canceled) a large number of orders to buy Aureus shares at prices higher than the then-current price of the stock.

The orders allegedly were intended solely to maintain or boost the stock’s price. The price per share of Aureus securities increased from $0.52 on August 4, 2016, to $1.62 on August 16, 2016.

According to the SEC’s complaint, Bercowy stated in recorded phone calls with a representative of a brokerage firm that he and others were trying to boost Aureus’ stock price.

The final judgment orders Bercowy to pay a civil penalty of $507,513 and permanently bars him from participating in an offering of a penny stock.

— Check out New York Halts $5M Hedge Fund Scheme Targeting Elderly on ThinkAdvisor.


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