According to the SEC’s complaint, Daniel Rudden and a group of companies operating under the name Financial Visions — which issued promissory notes to fund its operations in short-term financing for funeral services and related expenses — defrauded investors after promising them annual returns of 12% or more.
Financial Visions was formed in or around 2001 to offer life insurance assignments to family members of deceased individuals to pay for funeral expenses before the payout of the decedent’s life insurance policy.
The companies’ purported business of “life insurance assignments” involved financing funeral and related expenses in exchange for repayment of those expenses plus a 5% fee secured by a decedent’s life insurance policy, according to the SEC.
The complaint alleges that since 2010 or 2011, Rudden used new investor funds to pay interest and redemptions to existing investors and concealed the Financial Visions companies’ true financial performance and condition.
The complaint also alleges that Rudden continued to represent the business as successful to existing and prospective investors when he knew that he was running a Ponzi scheme.
For example, when the Financial Visions Companies ceased making interest payments to investors, Rudden sent an email to investors representing that this was because of a large capital call due to an “inordinate number of deaths of our investor group (12 people with over $2,000,000 invested).”
In or around July 2018, Rudden admitted in an email that the Financial Visions Companies had operated as Ponzi scheme since 2010 or 2011.
“I have no defense. I made a conscious choice along the way to keep taking money to keep interest current. At that point, it became a Ponzi,” he said in the email.
The SEC, which obtained an emergency asset freeze and other relief, seeks permanent injunctions, disgorgement plus prejudgment interest, and penalties.
The SEC also named three entities as relief defendants, which the SEC alleges were controlled by Rudden and received investor funds from the alleged Ponzi scheme.
Galvin Charges Advisor With Misleading Customers About His Disciplinary History
Secretary of State William Galvin, Massachusetts’ top securities regulator, charged a registered broker-dealer and investment adviser representative with disseminating false information on his website to clients and prospective clients.
Alan Siegel, whose customers are primarily retirees or those approaching retirement, made statements on his website regarding his disciplinary record in the securities industry that were demonstrably false.
According to the administrative complaint filed by Galvin’s Securities Division, Siegel had for years published a statement on his website under the heading “Reliability Report” which stated that he had never had a complaint filed against him with any company, organization or regulatory agency. Siegel went as far as drawing the reader’s attention to the word “never” by writing it in all capital letters and underlining it.
In fact, Siegel has had three complaints filed against him by customers who alleged hundreds of thousands of dollars in damages, according to his BrokerCheck record, which also says he was accused of shoplifting a pair of sneakers in 1970, when he was 17. He said in response that he had little memory of the incident and didn’t recall being charged.
Siegel’s employer, G.A. Repple & Co., was also charged in the complaint with failure to supervise its agent.
The complaint states that G.A. Repple & Co. failed to provide meaningful review and oversight of Siegel and his website, simply rubber-stamping the content. G.A. Repple was well aware of the complaints against Siegel, having paid for settlements with customers who had accused Siegel of breach of fiduciary duty, selling unsuitable investments and failure to disclose material information.
Galvin’s office is seeking a cease and desist order, censure, sanctions and an administrative fine on both Siegel and G.A. Repple.
Former Trader Agrees to Settle With SEC in $1.1 Million Insider Trading Scheme
The SEC charged a former professional trader with allegedly participating in a serial insider trading scheme with an investment banker and his father that generated $1.1 million in illicit profits.
According to the SEC’s complaint, Robert Stewart recruited his friend Richard Cunniffe, a professional trader, to place trades based on inside information that Stewart received from his son Sean Stewart, an investment banker.
Cunniffe used the information to place trades in his own accounts and generated approximately $1.1 million in illicit proceeds which he shared with Robert Stewart, the SEC says.
The SEC’s complaint charges Cunniffe with violating antifraud provisions of the federal securities laws.
Cunniffe, who cooperated in the investigation and previously pleaded guilty to criminal charges, agreed to settle the SEC’s civil charges against him. The settlement, which is subject to court approval, orders injunctive relief, disgorgement and interest, but no penalty.
The SEC barred Cunniffe from the securities industry based on his guilty plea.
SEC Charges Financial Analyst and His Mother With Insider Trading
The Securities and Exchange Commission charged Matthew Brunstrum, formerly a financial analyst at Stericycle Inc., with insider trading and with tipping his mother, who was also charged with insider trading.
The SEC’s complaint alleges that Matthew Brunstrum learned in April 2016 through his job that Stericycle’s first-quarter 2016 financial results would be much worse than had been expected and used this material nonpublic information to trade in Stericycle securities in advance of the company’s April 28, 2016, earnings announcement.
The complaint also alleges that Matthew Brunstrum disclosed Stericycle’s earnings information to his mother, who traded on that information.
Stericycle’s stock fell by $26.18 the day after it announced its first-quarter financial results, losing almost 22% of its value. The SEC’s complaint alleges that as a result of their illegal trading, Matthew Brunstrum avoided losses and earned profits in the amount of $159,904, and Susan Brunstrum avoided losses and earned profits in the amount of $170,252.
Without admitting or denying the allegations, Matthew Brunstrum and Susan Brunstrum each agreed to be permanently enjoined from future violations of antifraud provisions of the securities laws and agreed to pay disgorgement equal to each of their ill-gotten gains plus prejudgment interest. The court will determine the civil penalty amounts. The settlements are subject to court approval.
Court Orders Ex-Spouse and Friend of “Frack Master” to Disgorge $1.12 Million
A federal district court in Texas separately ordered the ex-wife of Chris Faulkner, the self-proclaimed “Frack Master,” and one of his friends to disgorge a total of more than $1.12 million.
The court entered a final judgment against Tamra Freedman, Faulkner’s former spouse, ordering her to disgorge $900,000, as well as entered a final judgment against Jetmir Ahmedi ordering Ahmedi to disgorge $222,000.
The SEC named Freedman and Ahmedi as relief defendants to recover ill-gotten gains they received from Faulkner, who the SEC charged along with 11 other defendants for their roles in an alleged $80 million oil-and-gas securities fraud scheme.
In settling with the SEC, Freedman and Ahmedi neither admitted nor denied the allegations.
SEC Charges Mizuho Securities for Failure to Safeguard Customer Information
The SEC charged Mizuho Securities USA LLC for its failure to safeguard information pertaining to stock buybacks by its issuer customers.
According to the SEC, Mizuho failed to maintain and enforce policies and procedures aimed at preventing the misuse of material nonpublic information, including maintaining effective information barriers between different trading desks and requiring employees to keep client information confidential.
Mizuho agreed to settle the charges and will pay a $1.25 million penalty.
The SEC’s order says that Mizuho traders regularly disclosed material nonpublic customer buyback information to other traders and Mizuho’s hedge fund clients during a two-year period. That information included the identity of the party placing the order, the order size, limit price, and indications that the orders were buyback orders.
Such information was routinely communicated across trading desks, notwithstanding that during the relevant period Mizuho executed over 99.8% of all buyback orders by using algorithms, rather than through trader-negotiated open market trades.
Without admitting or denying the SEC’s findings, Mizuho consented to the order imposing a $1.25 million penalty, a censure, and ordering it to cease and desist from committing or causing any future violations.
SEC Detects Silicon Valley Executive’s Insider Trading
The Securities and Exchange Commission announced that a senior executive at a Silicon Valley fiber optics company agreed to settle charges that he made nearly $200,000 in illicit profits by trading on inside information in advance of three disappointing earnings announcements by the company.
The case stems from the SEC Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns such as improbably successful trading in advance of earnings announcements over time.
The SEC’s order finds that Yao Li, as vice president of Technology at Alliance Fiber Optic Products, Inc. (AFOP), learned during regular meetings with AFOP’s senior executives that the company was likely going to miss its revenue guidance in three different quarters during 2014 and 2015.
According to the SEC’s order, Li traded on this inside information by short selling AFOP shares for profits as well as selling AFOP shares he already owned to avoid losses before these announcements. The SEC says AFOP specifically prohibited its employees from engaging in short selling.
Li must pay disgorgement of $196,200, prejudgment interest of $23,100, and a $196,200 penalty for a total of $415,500. Li also agreed to be prohibited from acting as an officer or director of a public company for a period of five years.
—Related on ThinkAdvisor: