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SEC Charges Ex-Rep With Using Investor Funds for Private Jets, Plastic Surgery: Enforcement

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The Securities and Exchange Commission charged David A. Harbour of Scottsdale, Arizona, with making misrepresentations to investors and misappropriating more than $1.5 million in investor funds to finance his personal lifestyle and pay off his debts.

According to the SEC, Harbour previously held Series 7 and 63 qualifications from the Financial Industry Regulatory Authority and was last associated with a broker-dealer in January 2008.

The SEC’s complaint says that between July 2014 and August 2016, Harbour raised money from four friends and business acquaintances by representing to them that their funds would be used to finance various businesses, including an American Indian business entity engaged in high-interest installment lending to consumers. They invested over $2.4 million into entities for which Harbour was the sole member and manager.

The SEC alleges that Harbour told the investors he would use their money exclusively for revenue-generating businesses, and promised them high annual returns, ranging from 12% to 20%.

Instead, the SEC alleges, Harbour diverted substantial portions of the invested funds for personal purposes that included paying off hundreds of thousands of dollars in personal credit card expenses, such as expenses for private jets, cruises, stays at resorts, and a payment to a Beverly Hills plastic surgeon. Harbour also allegedly used the investor money to make payments on personal loans and debts he owed to investors in prior business ventures.

According to the SEC, Harbour ultimately misappropriated more than $1.5 million of the money raised from the four investors.

Harbour has agreed to a settlement that is subject to court approval. Without admitting or denying the allegations, Harbour agreed to pay a total of $3.16 million, consisting of disgorgement of $1.5 million plus prejudgment interest of $97,072, and a penalty of $1.5 million. Harbour also agreed to be enjoined from future securities law violations.

Galvin Brings Charges In Local Real Estate Scheme

Secretary of State William Galvin, Massachusetts’ top securities regulator, charged two Massachusetts men in connection with a real estate investment scheme that resulted in more than $1.5 million in investor damages over nearly nine years.

The Massachusetts Securities Division filed an administrative complaint charging Kenneth Mousette with embezzling assets from Pool Fund Associates, which is a pooled investment fund that purchased and sold real estate for a profit, and David Lindahl with negligent management of the fund.

According to the complaint, the fraud first started in 1976 when Mark Shaevel created Pool Fund Associates and the Investors Fund Trust to allow investors to combine their money to purchase property and invest in real estate projects that investors would not be able to invest in individually. Shaevel funneled money from the Pool Fund into the Investment Fund Trust, of which he was the sole beneficiary.

Both trusts were transferred to Mousette and Lindahl in 2010, after which, according to the complaint, Mousette began fraudulently transferring fund assets to himself and his family members.

Under Lindahl and Mousette’s management of the funds, at least 34 investors, many of whom are elderly, never received any distributions or information about their investments. One investor who lost $80,000 to the scheme died before the losses were recouped.

The complaint seeks a cease and desist order, sanctions, an administrative fine, as well as an order to require offers of rescission and full restitution to fairly compensate investors who were harmed.

CFTC Announces Whistleblower Awards

The Commodity Futures Trading Commission announced multiple whistleblower awards totaling more than $45 million.

The awards demonstrate the increasing volume and complexity of incoming whistleblower submissions, the regulator says. Last month, the CFTC announced an award of approximately $30 million to one whistleblower.

According to James McDonald, director of the CFTC’s Division of Enforcement, “whistleblowers have added significant value to our enforcement program by enabling the commission to swiftly identify misconduct and hold wrongdoers accountable. I expect this trend to continue as the commission continues to receive increasing numbers of high-quality whistleblower tips.”

Whistleblowers are eligible to receive between 10% and 30% of the monetary sanctions collected. In addition, the CFTC can pay awards not only on CFTC enforcement actions but also related actions brought by foreign futures authorities if certain conditions are met.

The CFTC does not disclose any information that could reasonably be expected to reveal a whistleblower’s identity, except in limited circumstances such as when disclosure is required in connection with a public proceeding.

SEC Fines Scientist for Insider Trading

A scientist at Laboratory Corporation of America Holding (LabCorp) agreed to settle charges that he engaged in insider trading after learning that his company was about to acquire Sequenom Inc. in a July 2016 tender offer.

The SEC’s complaint alleges that Anup Madan, a principal scientist with LabCorp’s Covance Genomics Laboratory, learned of the pending acquisition when he conducted a due diligence related site visit to Sequenom’s San Diego facilities.

Over the next two trading days, Madan purchased 9,300 shares of Sequenom stock despite having signed a company insider trading policy that prohibited trading based upon confidential information that he acquired in the course of performing his job duties.

On the date of the public announcement, Sequenom’s stock price increased 176%, allowing Madan to sell his shares that same day for a profit of over $14,000.

Without admitting or denying the allegations, Madan agreed to the entry of a final judgment. He will also disgorge his ill-gotten gains and pay a penalty of $14,023, which is equal to the disgorgement amount.

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