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Executives to Pay $2.7M to Settle ICO Scam Charges: Enforcement

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Two former executives behind an allegedly fraudulent initial coin offering that was stopped by the Securities and Exchange Commission earlier this year have been ordered in federal court to pay nearly $2.7 million and prohibited from serving as officers or directors of public companies or participating in future offerings of digital securities.

In January, the SEC halted the initial coin offering via Dallas-based AriseBank, which was endorsed by former professional boxer Evander Holyfield.

AriseBank’s then-CEO Jared Rice Sr. and then-COO Stanley Ford were accused of offering and selling unregistered investments in their purported “AriseCoin” cryptocurrency.

“Rice and Ford lied to AriseBank’s investors by pitching the company as a first-of-its kind decentralized bank offering its own cryptocurrency for customer products and services,” Shamoil Shipchandler, director of the SEC’s Fort Worth Regional Office, said in a statement.  “The officer-and-director bar and digital securities offering bar will prevent Rice and Ford from engaging in another crypto-asset-based fraud.”

To settle the SEC’s charges, Rice and Ford agreed to be held jointly and severally liable for more than $2.2 million in disgorgement plus $68,423 in prejudgment interest, and each must pay a $184,767 penalty.

They also agreed to lifetime bars from serving as officers and directors of public companies and participating in digital securities offerings, and permanent prohibitions against violating the antifraud and registration provisions of the federal securities laws.

Rice and Ford agreed to the settlements without admitting or denying the allegations in the SEC’s complaint.

On Nov. 28, the U.S. Attorney’s Office for the Northern District of Texas announced parallel criminal charges against Rice.

SEC Charges Former Advisor, Daughter With Running Ponzi Scheme

The SEC charged a former Rockland County, New York-based investment advisor and his daughter with conducting a multimillion-dollar Ponzi scheme that defrauded local community members as well as members of their family and close friends.

The SEC alleges that Hector May, an investment advisor representative and the president and chief compliance officer of the now-defunct Executive Compensation Planners Inc. (ECP), and his daughter Vania Bell, who served as ECP’s controller and senior compliance administrator, misappropriated more than $7.9 million in a Ponzi scheme involving bonds.

According to the SEC’s complaint, with Bell’s help, May lied to investors by promising to invest their money in bonds when they actually used the money to pay for personal and business expenses, as well as extravagant items, such as jewelry, furs, vacations and a limousine driver. To conceal the fraudulent scheme, they sent bogus account statements to clients referencing the bonds that had never been purchased.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against May, and he has pleaded guilty to those charges.

The SEC’s complaint charges May and Bell with violating the antifraud provisions of the securities laws. May has agreed to the entry of a partial judgment against him in which he consents to injunctive relief with monetary and other relief to be decided in the future.

The SEC seeks the return of ill-gotten gains, with interest, as well as financial penalties.

SEC Halts Alleged Insider Trading Ring Spanning 3 Countries

The SEC filed insider trading charges against an IT contractor and two others he illegally tipped with confidential client information he stole while working in the Singapore branch of an investment bank.

The SEC obtained a court-ordered freeze of assets in three U.S. brokerage accounts and one U.S. bank account connected to the alleged trading.

The SEC’s complaint alleges that Rajeshwar Gannamaneni provided nonpublic information about impending mergers, acquisitions and tender offers to his wife, Deepthi Gandra, and his father, Linga Rao Gannamaneni, who lives in India.

Gannamaneni also allegedly traded in an account that he controlled, which was opened in the name of a family member who was living in the U.S. at the time.

According to the allegations in the SEC’s complaint, the three collectively reaped approximately $600,000 in profits by trading while in possession of inside information in advance of at least 40 corporate events.

The SEC’s complaint charges all three defendants with violating certain parts of the Securities and Exchange Act of 1934. The complaint also seeks disgorgement of all illicit trading profits or other ill-gotten gains.

SEC Charges Individuals With Binary Options Fraud

The SEC announced charges against an Ohio resident and his Pennsylvania business partner in connection with an unregistered and fraudulent binary options business.

According to the SEC’s complaint, Jared Jeffrey Davis and various shell companies controlled by Davis and his business partner, Dale Burke Pinchot, engaged in the fraudulent offering and sale of unregistered binary option securities under the brand names OptionMint, OptionKing, Option Queen and OptionPrince.

According to the complaint, Davis misrepresented the number of investors who successfully traded binary options and failed to disclose that, to be successful, an investor would need to win an unlikely high percentage of trades. The complaint alleges that Davis, Pinchot and their companies effectively took the opposing position on each trade and therefore made money when customers entered into losing binary options trades.

The complaint further alleges that Davis failed to inform investors that he frequently manipulated the options trading software to increase the odds of investor losses.

Without admitting or denying the SEC’s allegations, Davis and Pinchot consented to the entry of judgments that permanently enjoin them from participating in the issuance, purchase, offer, sale or promotion of any binary option security.

The final judgments provide that the court will determine disgorgement and civil penalties at a later date. The settlement is subject to court approval.

3 Developers Settle Charges of Fraudulent EB-5 Offering

Three Houston-area developers agreed to settle charges that they misused investor funds raised from 90 Chinese investors under the EB-5 Immigrant Investor Program on unrelated projects, the SEC announced.

The three developers — America Modern Green Senior LLC, America Modern Green Community LLC, and America Modern Green Residential LLC — have repaid the $49.5 million that they raised from the Chinese investors.

According to the SEC’s order, the developers told investors that their funds would be used exclusively for a large mixed-use real estate development EB-5 project. Instead, the SEC found that the developers improperly transferred $20.5 million of investor funds for various undisclosed and improper purposes, including funding purchases with respect to two unrelated real estate projects. In addition, the SEC found that the developers’ offering materials improperly described the titles and roles of two real estate experts.

Without admitting or denying the SEC’s findings, the developers collectively agreed to pay disgorgement of $49.5 million plus $1.1 million in interest, and an $800,000 penalty.

The order deems the disgorgement satisfied by payments to the Chinese investors made by the developers before the settlement, and also provides that the interest will be distributed to the investors. The order also imposes a cease-and-desist order on the developers.

SEC Charges Ag Company and Executive Chairman With Fraud

A multinational agricultural company agreed to pay $3 million to settle charges that it concealed substantial losses from investors through fraudulent accounting in connection with its divestiture of its primary operating entity.

In a related action, the company’s executive chairman, Lai Guanglin (aka Alan Lai), settled charges that he manipulated the company’s share price.

As described in the SEC’s order, Agria Corp. sold its Chinese operating company in return for stock and land use rights to 13,500 acres of undeveloped land in a remote, mountainous area of China’s Shanxi Province.

The SEC order found that Agria overstated the value of the stock it received by $17 million and assigned a value of nearly $60 million to the effectively worthless land use rights.

A separate SEC order found that in March 2013, Lai used nominee brokerage accounts to engage in manipulative trading in Agria’s American depository shares in order to inflate their price above $1 and prevent the securities from being delisted by the New York Stock Exchange.

The SEC’s order found that Agria violated antifraud, reporting, books and records and internal accounting control provisions of the federal securities laws. Without admitting or denying the findings, Agria agreed to pay a $3 million penalty and cooperate with the Commission’s staff in future investigations.

The SEC’s order against Lai found that he violated antifraud provisions of the federal securities laws. Without admitting or denying the findings, Lai agreed to pay a $400,000 penalty and be barred for a period of five years from acting as an officer or director of any public company.

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