Secretary of State William Galvin, Massachusetts’ top securities regulator, charged a California-based broker-dealer and its agent with engaging in improper trading practices to the detriment of investors.
Peter Cunningham of Los Angeles is alleged to have recommended his customers — 30% of whom were Massachusetts investors — to buy and then sell Unit Investment Trusts before their maturity date, resulting in losses for investors and increasing commissions for Cunningham and his employer, StockCross Financial Services, Inc.
“The facts of this case are a textbook example of how financial conflicts pervert the investor’s right to unbiased advice. This is why it is so important that the SEC adopt a true fiduciary standard and put aside its current ineffective rule proposal,” Galvin said in a statement.
Cunningham and StockCross reaped at least $750,000 in commissions from short-term UIT trades made from Massachusetts residents’ accounts alone. StockCross is also charged with failure to reasonably supervise its agent.
Unknown to his customers, Cunningham was deeply in debt, having had his wages garnished by court orders, and being served with at least two foreclosure notices on his home.
The complaint states that in at least one case, Cunningham convinced an investor to buy units in a UIT by making fraudulent representations regarding the value of securities in the investor’s account. In particular, according to the complaint, Cunningham disregarded the stated financial needs of an 81-year-old widow while providing misinformation to entice her to purchase units in a UIT.
According to the complaint, StockCross hired Cunningham in 2002, despite the fact that he had been terminated by his previous employer as a result of multiple customer complaints and owed more than $100,000 in two civil lawsuits. StockCross did not place Cunningham on heightened supervision until 15 years after he was hired, and even during the period of heightened supervision, StockCross failed to reasonably supervise Cunningham’s short-term UIT trading, the complaint states.
Cunningham currently has 13 disclosures on his BrokerCheck record, starting in 2000 and going up to this recent charge from the Massachusetts Securities Division.
The complaint seeks an order to cease and desist, censure, restitution to fairly compensate investors, an administrative fine, revocation for Cunningham, and a requirement that StockCross hire an independent compliance consultant to review its supervisory procedures.
Pyramid Scheme Targeted Latinos
A promoter of a pyramid scheme targeting Latino communities agreed to transfer assets valued at more than $1 million in a related bankruptcy proceeding and admit his role in the scheme to settle charges brought by the Securities and Exchange Commission against him and nine other defendants.
The final judgment forbids Santiago De la Rosa from participating in a multi-level marketing scheme that solely or primarily derives its revenue from the recruitment of others.
The judgment also orders De la Rosa to pay $1,092,013 in disgorgement and prejudgment interest, but that is deemed satisfied by an order requiring De la Rosa to transfer certain assets valued at $992,013 and pay $100,000 to settle an adversary action in a related bankruptcy case.
In settling the SEC’s charges, De la Rosa admitted that he was a promoter of TelexFree, appearing at public events to recruit for TelexFree and in promotional videos that were posted on YouTube.
The SEC has previously obtained final judgments by consent against TelexFree’s co-owner and president and its CFO, its international sales director, a promoter of the pyramid scheme, and another promoter, who also was ordered to jail for civil contemptarising from his repeated violations of court orders.
SEC Charges 3 Unregistered Sales Agent for Improperly Soliciting Investments
The SEC charged three individuals in two separate enforcement actions for improperly soliciting investments in oil and gas ventures.
The SEC filed a civil injunctive action against Chad Anthony Lewis, a Kentucky resident, for unlawfully acting as an unregistered broker and selling unregistered investments in two oil and gas companies based in Texas.
The SEC’s complaint against Lewis alleges that Lewis illegally solicited and raised money from investors for Aegis Oil, LLC and 7S Oil & Gas, LLC.
The SEC also filed a civil injunctive action against two other sales agents – Alexander Charles White and Paul Douglas Vandivier – for also unlawfully acting as unregistered brokers and selling unregistered investments in Aegis Oil, LLC and 7S Oil & Gas, LLC.
Both of these companies offered and sold unregistered securities in the form of “joint venture units” in oil and gas development projects located in Texas.