Close Close

Regulation and Compliance > Federal Regulation > SEC

SEC Charges Firm That Failed to Supervise Brokers: Enforcement

Your article was successfully shared with the contacts you provided.

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.

The court granted the SEC’s request for a temporary restraining order freezing assets and other emergency relief. The SEC seeks an injunction, disgorgement, and penalties from Moody and CM Capital. The SEC also seeks disgorgement from relief defendant, G.E. Holdings, a company that the SEC alleges is wholly controlled by Moody and was used to receive and transfer victim funds.

SEC Charges Former Executive for Insider Trading

A former vice president at ClubCorp Holdings, Inc. has agreed to settle charges that he engaged in insider trading after learning about a possible sale of the company, according to the SEC.

The SEC’s complaint alleges that Nelson “Frank” Molina, the former vice president of Investor Relations and Treasury at ClubCorp, discovered that ClubCorp was exploring significant transactions involving the company.

ClubCorp Holdings, Inc. owns and operates private golf, country, business, sports, and alumni clubs in North America.

According to the complaint, despite having signed ClubCorp’s securities trading policies — which prohibited him from buying or selling ClubCorp securities at any time he had “material non-public information concerning the [c]ompany” — Molina subsequently purchased shares of the company’s publicly-traded stock.

Once the news became public, ClubCorp’s stock price rose more than 16%, increasing the value of Molina’s stock by more than $78,000. After receiving an inquiry from FINRA, ClubCorp contacted Molina, who acknowledged his unlawful trading and promptly resigned from the company. Molina then retained counsel, who reported his misconduct to the SEC staff and provided materials documenting his unlawful trading.

Molina will disgorge his ill-gotten gains and pay a penalty of $39,230, which is one-half the disgorgement amount, according to the SEC.

SEC Charges Real Estate Investment Funds and Execs for Misleading Investors

The SEC charged two real estate investment funds and four executives in connection with their alleged roles in misleading investors by failing to disclose that it could not pay its distributions and was using money from a newer fund to pay distributions to investors in the older fund.

The SEC also charged a fifth executive for allegedly signing false SEC filings.

According to the SEC’s complaint, Texas-based United Development Funding (UDF) is a family of private and publicly-traded investment funds that deploys investor capital as loans to homebuilders and land developers.

UDF allegedly solicited investors by advertising annualized returns of up to 9.75% as well as regular distributions. According to the complaint, for almost five years, UDF did not tell investors that it lacked the monthly cash flow at times to cover investor distributions in one of its older funds, UDF III.

Instead, to pay these distributions, the newer UDF IV fund loaned money to developers who also had borrowed money from UDF III. Rather than using those funds for development projects that were underwritten by UDF IV, UDF directed the developers to use the loaned money to pay down their older loans from UDF III.

In most of these cases, the developer never received the borrowed funds at all, and UDF simply transferred the money between funds so that UDF III could make the distributions to its investors.

UDF executives Hollis Greenlaw, Benjamin Wissink, Theodore Etter, and Cara Obert knew or should have known that they had misled investors about the use of funds and the nature and status of loans made to developers, the SEC says.

The complaint also alleges that David Hanson signed false and misleading SEC filings and management representation letters without taking sufficient actions to ensure the accuracy of or a sufficient basis for many of their representations.

Without admitting or denying the SEC’s allegations, Greenlaw, Wissink, Etter, and Obert agreed to pay $8.2 million in disgorgement, prejudgment interest, and civil penalties. Hanson agreed to pay a $75,000 civil penalty.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.