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SEC Uses Data Analysis to Bust Cherry-Picking Broker: Enforcement

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The Securities and Exchange Commission charged a New Jersey-based broker with misusing his access to customers’ brokerage accounts to enrich himself and family members at the expense of his customers, many of whom had entrusted him with their retirement accounts.

The SEC’s complaint alleges that Michael Bressman, a securities broker, misused his access to an omnibus or “allocation” account to obtain at least $700,000 in illicit trading profits over a six-year period ending in February.

Bressman was working at FCG Advisors in Chatham, New Jersey, at the time of the alleged scheme, and prior to that worked at Merrill Lynch in New York City, according to BrokerCheck.

According to the SEC, Bressman placed trades using the allocation account and cherry-picked profitable trades, which he then transferred to his own account and the account of two family members, while placing unprofitable trades in other customers’ accounts.

Most of these customers were retail investors with relatively modest investment portfolios, the SEC says. According to the SEC, Bressman’s customers received approximately $750,000 less than they would have absent Bressman’s scheme.

The SEC uncovered the alleged fraud by using data analysis to detect suspicious trading patterns.

“We will continue to develop and use data analytics to root out cherry-picking and other frauds,” said Joseph Sansone, chief of the SEC Enforcement Division’s Market Abuse Unit, in a statement.

The SEC’s complaint charged Bressman with violating antifraud provisions of the federal securities laws and a related SEC antifraud rule. The SEC is seeking return of allegedly ill-gotten gains, plus interest, penalties and a permanent injunction.

In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts announced criminal charges against Bressman.

BD Fined $2.75M for Deficient Blue Sheet Data

The SEC announced that Convergex Execution Solutions, now known as Cowen Execution Services, will pay $2.75 million to settle charges that the broker-dealer firm provided the SEC with incomplete and deficient securities trading information known as blue sheet data.

According to the SEC’s order, for nearly four years as a result of coding errors, a substantial number of the firm’s “blue sheet” submissions were missing data or contained deficiencies, including customer identifying information, order execution times, exchange codes, transaction type identifiers and other trade information.

Approximately 29% of Convergex’s submissions contained deficient customer identifying information from May 1, 2012, to Feb. 28, 2016. Although the Financial Industry Regulatory Authority sanctioned Convergex in March 2012 for deficient blue sheet submissions, the SEC’s order found that the firm did not take reasonable steps to ensure that its blue sheet submissions to the SEC contained complete and accurate information and failed to identify the deficiencies during this period.

“Broker-dealers must ensure they submit complete and accurate blue sheet data to the SEC because the failure to do so can hinder our ability to detect wrongdoing and protect investors,” said Joseph G. Sansone, chief of the SEC’s Market Abuse Unit.

The SEC’s order finds that Convergex willfully violated the broker-dealer books and records and reporting provisions. Convergex admitted the findings in the SEC’s cease-and-desist order and agreed to be censured and pay a $2.75 million penalty.

SEC Charges Crypto Asset Manager

The SEC announced its first-ever enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets.

The SEC entered an order finding that Crypto Asset Management offered a fund that operated as an unregistered investment company while falsely marketing it as the “first regulated crypto asset fund in the United States.”

According to the SEC’s order, the California-based hedge fund manager and its sole principal Timothy Enneking raised more than $3.6 million over a four-month period in late 2017 while falsely claiming that the fund was regulated by the SEC and had filed a registration statement with the agency.

By engaging in an unregistered non-exempt public offering and investing more than 40% of the fund’s assets in digital asset securities, Crypto Asset Management caused the fund to operate as an unregistered investment company.

After being contacted by the SEC staff, Crypto Asset Management ceased its public offering and offered buybacks to affected investors.

“Hedge funds seeking to ride the digital asset wave continue to proliferate,” said C. Dabney O’Riordan, co-chief of the Asset Management Unit, in a statement. “Investment advisers must be sure that the funds they offer adhere to the applicable registration obligations and must accurately represent their funds’ regulatory status to investors.”

Crypto Asset Management and Enneking agreed to the SEC’s cease-and-desist order and censure without admitting or denying the findings against them, and agreed to pay a penalty of $200,000.

SEC Charges Internet Sports Betting Funds With Registration Violations

In two separate cases, the SEC charged two firms with conducting unregistered securities offerings.

Both firms — Contrarian Investments and Nevada Sports Investment Group — were among a number of organizations formed pursuant to a 2015 Nevada state law that, for the first time, allowed Nevada-based entities to collect and pool money from investors anywhere in the world for purposes of sports wagering. Both also promoted their investment opportunities as functioning like mutual funds, according to the SEC.

According to the SEC’s complaint against Nevada Sports, the firm raised over $1 million from more than 30 investors from 2015 through 2017. The SEC’s complaint against Contrarian reports that it raised over $400,000 from more than 30 investors in 2016 and 2017.

Both Nevada Sports and Contrarian conducted a general solicitation by widely offering their investment opportunities on the internet and further failed to make a determination regarding whether all of their investors were accredited.

Both firms are charged with conducting an unregistered offering of securities.

SEC Charges 3 in $3.7M Crude Oil Processing Scheme

The SEC charged three individuals for defrauding approximately 80 investors of more than $3.7 million.

According to the SEC’s complaint, Joseph Laura, Anthony Sichenzio and Walter Gil de Rubio defrauded investors and misappropriated investor funds between June 2013 and January 2017 through sales of securities in a company that claimed to have rights to a crude oil processing technology.

Many of these investors were social and business acquaintances who were led to believe they were being offered a special opportunity available only to “friends and family.”

The complaint alleges that Laura drafted investor contracts that contained baseless and unreasonably optimistic projections concerning the timing and amount of investment returns, and made false statements about the use of offering proceeds. The complaint further alleges that Laura claimed investor funds would be used for “working capital” when less than half of the investors’ funds went to legitimate business uses.

Instead, Laura misappropriated more than half the funds raised. The complaint alleges that Sichenzio and Gil de Rubio schemed with, and aided and abetted Laura in the fraud, were aware of Laura’s misappropriation, and also received investor funds.

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