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FINRA Bars Broker for Paying His Mortgage With Elderly Client’s Money: Enforcement

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FINRA barred John Douglas Wade, who was previously a registered broker and investment advisor and at the time worked for U.S. Bancorp Investments, for taking money from two elderly clients and using that money for personal expenses.

Without admitting or denying the findings, Wade consented to the sanction and to the entry of findings that he converted funds totaling $105,712 from his member firm’s elderly customers without authorization.

According to FINRA, Wade electronically transferred, without authorization, $47,570 from one of the elderly customers’ checking accounts (at a bank affiliated with the firm) to Wade’s own mortgage account.

Wade similarly used funds from another elderly customer to pay his own mortgage. Wade had this customer withdraw funds from his firm account via third-party checks, in amounts totaling $51,141, and write a check in the amount of $7,000 from his checking account (at a bank affiliated with the firm), ostensibly to invest in real estate investment trusts.

SEC Charges Failing Real Estate Investment Companies With Operating a $135 Million Fraud Scheme

The Securities and Exchange Commission filed an emergency action against Jerome Cohen and Shaun Cohen and their companies, Equitybuild Inc. and Equitybuild Finance LLC, charging them with operating a $135 million offering fraud involving real estate located primarily on Chicago’s South Side.

The SEC’s complaint alleges that since 2010, the defendants have sold promissory notes to at least 900 investors throughout the country.

The defendants raised these funds by falsely promising safe investments fully secured by income-producing real estate that generated returns of 12% to 20%.

According to the SEC’s complaint, the defendants hid from investors that they skimmed 15% to 30% off each investment by taking undisclosed fees. They did this by hiding the fees by reporting inflated acquisition costs.

The complaint also alleges that, contrary to defendants’ representations, the real estate did not earn enough to pay the double-digit returns promised to investors. As a result, the defendants could only pay earlier investors by raising funds from unwitting new investors.

According to the SEC’s complaint, the defendants recently admitted in a video recording to earlier investors that the companies are in financial distress, can no longer afford to make payments to investors, and are cutting staff to a “skeleton crew.” Despite these disclosures, the defendants have continued to solicit new investors for various real estate funds, again offering double-digit returns but failing to disclose the companies’ dire financial condition.

The SEC’s complaint seeks injunctions against future securities laws violations, disgorgement of the defendants’ ill-gotten gains, and civil penalties.

The SEC recently obtained a temporary restraining order which, among other things, enjoins the defendants from raising any additional funds from investors. The SEC also obtained an order appointing a receiver to secure the real estate and other assets obtained with investor proceeds for the benefit of the defrauded investors.

FINRA Bars CEO for Unregistered Reg D Offerings

Harold Lee Connell was barred from association with any FINRA member in all capacities for participating in the sale of three unregistered Regulation D offerings through misrepresentations and omissions.

Connell was the CEO, president, principal supervisor and owner of the now-expelled firm, CP Capital Securities.

The findings stated that Connell and others at his member firm raised more than $4.5 million from individual investors in connection with the sale of the three unregistered Regulation D offerings, under the assumption that investors’ funds would be used to make investments in a variety of companies.

However, 85% of the first offering was invested in one penny stock company. The other two offerings were primarily undisclosed self-offerings. Investors’ funds were transferred to the firm’s holding company, and from there, to the firm.

The third offering also did not disclose that the companies that received their funds, the firm and its holding company, were deeply in debt, or that investor funds would be used to pay non-firm expenses and money owed to investors in prior offerings.

The findings also stated that Connell sold the offerings without a reasonable basis to believe that they were suitable for any investor. The first offering was not suitable because appropriate due diligence was not performed on the product. The second and third offerings were not suitable because they raised money for the firm’s holding company and the firm.

Also, contrary to the representations in the second and third offerings’ PPMs, the offerings’ funds were not invested in a diverse basket of investments.

According to FINRA, Connell, as the CEO, president, principal supervisor and owner of the firm should not have permitted the marketing or sale of these products.

None of the investors recouped any of their principal investments.

SEC Announces Settlement With 2 Traders Linked to NY Congressman’s Insider Trading Case

The Securities and Exchange Commission announced the entry of final judgments against two traders who received material, nonpublic information about negative drug trial results for Innate Immunotherapeutics.

Lauren Zarsky and her mother, Dorothy Zarsky, consented to the entry of final judgments without admitting or denying the charges that they sold their shares of Innate based on tips they received from Cameron Collins, Lauren Zarsky’s boyfriend. The SEC separately charged Rep. Christopher Collins, R-N.Y., an Innate board member, with tipping Cameron Collins, his son. Cameron Collins and another individual, Stephen Zarsky, were charged with trading and tipping others on the basis of the material, nonpublic information.

Lauren Zarsky agreed to disgorge her ill-gotten gains of $19,440, plus prejudgment interest of $839, and pay a civil penalty of $19,440. Dorothy Zarsky agreed to disgorge her ill-gotten gains of $22,600, plus prejudgment interest of $975, and pay a civil penalty of $22,600.

Pursuant to a settlement offer, the commission issued an order suspending Lauren Zarsky, a CPA, from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits her to apply for reinstatement after five years.

The SEC’s case against Christopher Collins, Cameron Collins and Stephen Zarsky is ongoing. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions. It also seeks an officer and director bar against Christopher Collins.

SEC Charges Technology Fund Advisor, Founder in Fraudulent Scheme

The SEC charged the founder of San Francisco-based venture capital funds and his investment advisory firm with overcharging investors to fund personal projects, including sending millions of dollars to his own virtual reality production company.

The SEC’s complaint alleges that Michael Rothenberg marketed his advisory firm, Rothenberg Ventures LLC, as uniquely positioned to identify millennial entrepreneurs and invest in “frontier technology” companies.

According to SEC filings, Rothenberg’s funds had nearly 200 investors and more than $64 million in assets. The SEC’s complaint alleges that over a three-year period, Rothenberg and his firm misappropriated millions of dollars from the funds, including an estimated $7 million of excess fees, which Rothenberg used to support personal business ventures he claimed were self-funded and to pay for private parties and events at high-end resorts and Bay Area sporting arenas.

Without admitting or denying the allegations in the SEC’s complaint, Rothenberg and Rothenberg Ventures agreed to settle the charges. The settlement is subject to approval by the federal district court for the Northern District of California, which would determine the amount of disgorgement and civil money penalties.

Rothenberg also agreed to be barred from the brokerage and investment advisory business with a right to reapply after five years.

SEC Charges Cold-Caller and His Firm With Defrauding Investors Into Purchasing Penny Stock

The SEC charged Eric Lesak, Global Research LLC of Pennsylvania and Global Research LLC of New York with securities fraud in their promotion of the shares of the penny stock company Axiom Holdings.

According to the complaint, between December 2015 and June 2017, the defendants pitched Axiom stock to more than 100 investors who purchased more than 1.9 million shares of stock for approximately $2.8 million, leading to losses of more than $2.3 million.

The complaint alleges that Lesak and Global did not disclose to prospective investors that Lesak had been barred and had his registration suspended by the National Association of Securities Dealers (a precursor to FINRA), or that in 2013 he had pleaded guilty to and been convicted of both securities fraud and wire fraud related to securities transactions.

Prior to March 6, 2017, the defendants did not tell prospective investors that they were being paid thousands of dollars each month — in many instances tens of thousands of dollars — to promote Axiom stock to investors.

According to the complaint, to help create “traffic” in Axiom stock and the appearance of a market for its securities, Lesak personally bought and sold thousands of shares of Axiom stock in hundreds of transactions that made little economic sense and resulted in losses for Lesak.

The SEC is seeking permanent injunctions, disgorgement plus prejudgment and post-judgment interest, civil monetary penalties, and an order prohibiting Lesak from participating in any offering of penny stocks.

SEC Charges Microcap Issuer and Individuals with Unregistered, Fraudulent Offering

The SEC charged a corporation and its principals with conducting a multimillion-dollar offering fraud.

The SEC alleges that Nevada-based microcap issuer Intertech Solutions, which purports to be a project finance and management company for mining operations, along with William Scott Marshall and David Naylor, raised more than $7 million from hundreds of investors throughout the United States and Canada.

According to the complaint, Intertech, Marshall and Naylor misled investors about the value of Intertech’s gold mine interest, Intertech’s timeframe for generating revenue, and commission payments Intertech made to securities solicitors.

The complaint also alleges that, at Marshall’s direction, Intertech hired numerous individuals to engage in cold-call solicitations of investors. Finally, Marshall and Naylor allegedly stole hundreds of thousands of dollars in investor funds, which they used to pay for personal expenses such as such as gym memberships, resort stays, personal medical expenses and a car Marshall exclusively used.

Without admitting or denying the SEC’s allegations, Intertech, Marshall, Naylor and relief defendant West Port Energy, a company formed by Marshall and which allegedly received proceeds of the fraud, have agreed to disgorge nearly $7.4 million in proceeds from the alleged fraud. In addition, Marshall and Naylor have agreed to pay civil penalties of $184,767 and $92,383, respectively. Intertech, Marshall and Naylor have also agreed to permanent injunctions, and Marshall and Naylor have agreed to conduct-based injunctions and permanent officer-and-director and penny-stock bars. The settlement is subject to court approval.

— Check out SEC Quashes More Bitcoin ETF Pitches in Another Blow to Crypto on ThinkAdvisor.


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