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Regulation and Compliance > Federal Regulation > SEC

FINRA Bars Ex-LPL Rep for Taking Client Money to Pay Her Taxes: Enforcement

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Laura Ortega Shean, who had previously been registered with LPL Financial, was barred from association with any Financial Industry Regulatory Authority member in all capacities, according to FINRA’s June disciplinary actions.

According to FINRA, Shean converted approximately $124,000 in customer funds between March and October 2017.

On six occasions, Shean made tax payments for her own benefit to the Internal Revenue Service by improperly directing the IRS to debit funds from a customer’s brokerage account.

After the misconduct was discovered, the customer was reimbursed in full by having certain of the transfers reversed and by Shean making additional reimbursement.

Shean was first registered with a FINRA member firm in 1996. From 1999 through 2017, Shean was registered with LPL Financial LLC. Shean’s registration with LPL was terminated by Form U5 filed on Nov. 9, 2017, and she has not been registered or associated with a member firm since that time.

SEC Charges Insurance Agent With Bilking Elderly Clients

The Securities and Exchange Commission has charged a Pennsylvania-based insurance agent with engaging in a Ponzi scheme that targeted retail investors who lacked significant investment experience.

According to the SEC’s complaint, from at least 2010 through 2017, James Hocker began his relationship with a number of investors by selling them insurance.

Hocker preyed primarily on older investors without significant investment experience, according to the SEC. The investors were largely elderly retirees or individuals nearing retirement, and some of Hocker’s investors were widows who relied on Hocker to manage their money following the death of their husbands.

After allegedly gaining their trust, he encouraged them to invest with him by falsely promising guaranteed returns of between 10% and 30% from investments he would make on their behalf in the S&P 500 and other unspecified investment vehicles.

The SEC says that over the last five years Hocker raised approximately $1.27 million from about 25 investors.

Some investors allegedly withdrew money from their life insurance policy or retirement accounts to fund their investment with Hocker. However, Hocker did not invest any of the funds.

Instead, he pocketed the money and used it for his personal living expenses such as credit card bills and to make payments to other investors. He also misappropriated investor funds to pay for restaurant and casino expenses and to pay spousal support to his ex-wife. None of these expenditures were disclosed to or approved by investors, according to the SEC.

The SEC seeks an injunction, disgorgement and penalties.

CFTC Fines JPMorgan Chase Bank $65M for Attempted Rate Manipulation

The Commodity Futures Trading Commission issued an order filing and settling charges against JPMorgan Chase Bank for attempted manipulation of the ISDAFIX benchmark. The CFTC is requiring JPMorgan Chase to pay a $65 million civil monetary penalty.

The CFTC order finds that over a five-year period — beginning in at least January 2007 and continuing through January 2012 — JPMorgan Chase made false reports and attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a leading global benchmark referenced in a range of interest rate products, to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps.

The CFTC says JPMorgan Chase’s efforts to manipulate or “muscle” the USD ISDAFIX were common knowledge and openly joked about by certain JPMorgan traders.

According to James McDonald, CFTC director of enforcement, this  action “clearly demonstrates the commission’s unrelenting commitment to root out manipulation from our markets and to protect those who rely on the integrity of critical financial benchmarks.”

In accepting the bank’s offer, the CFTC recognized that JPMorgan provided substantial cooperation in the investigation in this matter, and commenced significant remedial action to strengthen the internal controls and policies relating to all benchmarks, including ISDAFIX.

SEC Charges New York Penny Stock Financier With Market Manipulation and Scalping Scheme

The SEC charged a penny stock financier, based in Bronxville, New York, and two companies that he controlled for their respective roles in a fraudulent market manipulation and scalping scheme that generated more than $11 million from unlawful stock sales.

According to the SEC’s complaint, Joseph Fiore manipulated the market and illegally sold the stock of the microcap issuer Plandai Biotechnology Inc.

The complaint alleges that Fiore financed and directed a promotional campaign that included recommendations to buy Plandai stock without disclosing that Fiore beneficially owned Plandai stock, intended to sell and was selling millions of shares, comprising a substantial portion of his Plandai stock holdings, into the public market.

The complaint further alleges that Fiore engaged in manipulative trading through two companies he controlled, Berkshire Capital Management Co. and Eat at Joe’s Ltd. He also made false and misleading statements to brokerage firms through which he traded Plandai stock, and failed to disclose his beneficial ownership of more than five percent of the outstanding shares of Plandai stock. Finally, the complaint alleges that Eat at Joe’s failed to register as an investment company with the SEC.

The SEC seeks permanent injunctions, disgorgement of ill-gotten gains along with prejudgment interest, and financial penalties against all of the defendants; penny stock bars against Fiore and Berkshire; and an officer and director bar against Fiore.

Dallas Oil-And-Gas Company, CEO Settle $8 Million SEC Fraud Suit

The SEC charged a Dallas-based oil-and-gas company and its chief executive officer in connection with a series of allegedly fraudulent unregistered oil-and-gas securities offerings that raised millions of dollars from investors.

In its complaint, the SEC alleges that Jefferey Gordon and Texas Coastal Energy Co. LLC (TCEC) cold-called investors across the country, soliciting their interest in financing the drilling and completion of oil-and-gas prospects in Kansas and Texas in exchange for a share of future oil-and-gas production revenue.

According to the complaint, Gordon and TCEC used a combination of false and misleading offering materials and sales pitches to deceive investors. Among other things, Gordon and TCEC lied to investors about TCEC’s experience and track record, the advice and success rate of its geologists, the potential reserves on its prospects, the potential return on investments therein, and the manner in which TCEC would use investor funds.

Ultimately, Gordon and TCEC raised more than $8 million from at least 80 investor victims. While investors lost almost every dollar invested, TCEC and Gordon misappropriated over $2.6 million of investor funds for their own use.

Without admitting or denying the SEC’s allegations, TCEC and Gordon consented to the entry of a final judgment that permanently restrains and enjoins them from violating certain SEC provisions. TCEC and Gordon also agreed to be restrained and enjoined from certain activities in connection with the purchase, offer and sale of securities in the future.

Additionally, TCEC and Gordon will be ordered to pay disgorgement, prejudgment interest and civil penalties totaling $7.2 million. Finally, Gordon has offered to consent to associational and penny stock bars.

Former GH3 International Officer to Pay Nearly $280,000 in Pump-and-Dump Scheme

The courts entered a final judgment against Richard Bailey, a former officer of GH3 International Inc., for his role in a scheme to manipulate the company’s stock.

The judgment orders Bailey to pay disgorgement of $108,000, prejudgment interest of $63,445.91, and a civil penalty of $108,000.

The SEC’s complaint alleged that Bailey and several co-defendants participated in a pump-and-dump scheme involving GH3′s common stock that generated more than $700,000 of illicit profits.

Without admitting or denying the SEC’s allegations, Bailey previously consented to a judgment entered on Jan.uary 23 that barred him from participating in any offering of a penny stock; barred him from serving as an officer or a director of a public company; and reserved issues relating to monetary relief for subsequent determination.

Finra Fines Merrill Over WSPs

Broker-dealer Merrill Lynch, Pierce, Fenner & Smith was censured, fined $115,000 and required to revise its written supervisory procedures (WSPs), according to Finra’s June Disciplinary Actions.

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce written policies and procedures that were designed to prevent trade-throughs of protected quotations in National Market System (NMS) stocks.

According to FINRA, the firm failed to take reasonable steps to establish that the intermarket sweep orders it routed met the definitional requirements set forth in Regulation NMS. The firm experienced four systems issues that gave rise to certain of the above violations.

The firm became aware of at least one of the issues in June 2007 but the firm did not remediate the issue until March 2014. According to FINRA, the firm failed to recognize the scope of the issue and assigned it a low priority for later remediation.


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