The Securities and Exchange Commission charged New York-based broker-dealer Alexander Capital L.P. and two of its managers for failing to supervise three brokers who made unsuitable recommendations to investors, “churned” accounts, and made unauthorized trades that resulted in substantial losses to the firm’s customers while generating large commissions for the brokers.
Thursday’s actions found that Alexander Capital failed to reasonably supervise William Gennity, Rocco Roveccio, and Laurence Torres, brokers who were previously charged with fraud in September 2017.
According to the order against Alexander Capital, the broker-dealer lacked reasonable supervisory policies and procedures and systems to implement them. The SEC says that if these systems were in place then Alexander Capital likely would have prevented and detected the brokers’ wrongdoing.
In separate orders, the SEC found that supervisors Philip Noto II and Barry Eisenberg ignored red flags indicating excessive trading and failed to supervise brokers with a view to preventing and detecting their securities-law violations. The SEC’s order against Noto finds that he failed to supervise two brokers and its order against Eisenberg finds that he failed to supervise one broker.
“Broker-dealers must protect their customers from excessive and unauthorized trading, as well as unsuitable recommendations,” Marc Berger, director of the SEC’s New York Regional Office, said in a statement. “Alexander Capital’s supervisory system — and its personnel — failed its customers, and [the SEC’s] actions reflect our continuing efforts to protect retail customers by holding firms and supervisors responsible for such failures.”
Alexander Capital agreed to be censured and pay $193,775 of allegedly ill-gotten gains, $23,437 in interest, and a $193,775 penalty, which will be placed in a Fair Fund to be returned to harmed retail customers. The broker-dealer also agreed to hire an independent consultant to review its policies and procedures and the systems to implement them.
Noto agreed to a permanent supervisory bar and to pay a $20,000 penalty, and Eisenberg agreed to a five-year supervisory bar and to pay a $15,000 penalty. The SEC says these penalties will be paid to harmed retail customers.
SEC Charges Two Men With Illegal Sales of UBI Blockchain Internet Stock
The SEC charged two men alleged to have profited from illegal sales of stock of a company claiming to have a blockchain-related business.
According to the SEC’s complaint, attorney T.J. Jesky and his law firm’s business affairs manager, Mark DeStefano, made approximately $1.4 million by selling shares in UBI Blockchain Internet Ltd. over a 10-day period from Dec. 26, 2017 to Jan. 5, 2018.
The sales stopped when the SEC temporarily suspended trading in UBI Blockchain stock earlier this year due to concerns about the accuracy of assertions in its SEC filings and unusual and unexplained market activity.
The SEC’s complaint alleges that Jesky and DeStefano received 72,000 restricted shares of UBI Blockchain stock in October 2017 and were permitted to sell the shares at a fixed price of $3.70 per share under the registration statement. Instead, the complaint alleges that Jesky and DeStefano unlawfully sold the shares at much higher market prices — ranging from $21.12 to $48.40 — when UBI Blockchain’s stock experienced an unusual price spike.
The SEC’s complaint charges Jesky and DeStefano with violating the registration provisions of the federal securities laws. Without admitting or denying the allegations in the SEC’s complaint, Jesky and DeStefano agreed to return approximately $1.4 million of allegedly ill-gotten gains, pay $188,682 in penalties, and be subject to permanent injunctions. The settlement is subject to the court’s approval.
SEC Shuts Down $5 Million Ponzi Scheme
The SEC announced charges against a Virginia investment advisor firm and its sole owner, for operating a nearly $5 million Ponzi scheme.
The SEC also obtained an order freezing assets in more than 30 brokerage and bank accounts controlled by the defendants.
According to the SEC’s complaint, Edward Lee Moody and his wholly-owned investment advisor firm CM Capital Management, LLC, has operated a Ponzi scheme and defrauded dozens of investors. The SEC alleges that Moody obtained $4.95 million from approximately 60 individuals and entities for investment purposes.
Moody represented his firm as a successful money management company that profitably invested client funds in securities. To maintain this illusion, Moody and CM Capital made periodic repayments to investors and sent fictitious monthly account statements that purported to show that clients had earned profitable returns on their securities investments.
The SEC alleges that, in reality, Moody invested none of the $4.95 million, but instead, he used the investor funds to pay off earlier investors, to fund his own speculative trading, and for personal expenses. Among other expenses, Moody used investor funds to buy a house, a car, remodel his new home, travel, and cover his restaurant and bar tabs, states the SEC.