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Regulation and Compliance > Federal Regulation > SEC

SEC Charges 13 More Unregistered Brokers Who Sold Woodbridge Securities to Investors: Enforcement

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The Securities and Exchange Commission announced charges against an additional 13 individuals and 10 companies for unlawfully selling securities of the Woodbridge Group of Companies to retail investors.

Woodbridge collapsed into bankruptcy in December 2017, and the SEC previously charged the company, its owner and others with operating a $1.2 billion Ponzi scheme and charged five of the top Florida-based sales agents with securities and broker-dealer registration violations.

The 13 individuals charged were among Woodbridge’s top revenue producers, selling more than $350 million of its unregistered securities to more than 4,400 investors. According to the complaints, the defendants marketed Woodbridge’s securities as a “safe” and “secure” investment and reaped millions of dollars in commissions on their sales even though they were not registered as, or associated with, registered broker-dealers. The SEC also alleges that defendant Jordan Goodman, a self-described “media influencer,” touted Woodbridge without disclosing that he was paid to do so.

“The SEC has now charged 18 of Woodbridge’s highest-earning unregistered sales agents who sold more than $400 million of its securities to retail investors,” said Eric Bustillo, director of the SEC’s Miami Regional Office. “Our continuing investigation of Woodbridge seeks to hold those who aided this massive fraud accountable and to return funds to harmed investors.”

In its latest actions, the SEC is seeking court-ordered injunctions, return of allegedly ill-gotten gains with interest, and financial penalties. See here for a full list of the defendants.

SEC Charges California Advisor With Fraud

The Securities and Exchange Commission charged an investment advisor with misappropriating client funds and misleading his clients about how their money was invested and how their investments were performing.

The SEC’s complaint alleges that Craig Arsenault, based in Laguna Niguel, California, defrauded clients of his advisory firm, Atlas Capital Management Inc.

Arsenault persuaded several of his clients invest $5.7 million total in a company he controlled, ACT Global Investments.

According to the complaint, Arsenault solicited investments in ACT, telling his advisory clients that their funds would be used to make secured loans to doctors for the purpose of acquiring medical equipment. The complaint alleges that Arsenault and ACT used client funds instead to make unsecured loans to, for example, a used car dealership, and to acquire undeveloped real estate. As alleged in to the complaint, Arsenault then provided clients with deceptive account statements that made it appear as if these investments were generating substantial income when they were not.

In addition, Arsenault misappropriated and misused more than $1 million of client funds in ACT, according to the SEC.

Instead of investing the clients’ funds as he had promised, Arsenault used a substantial portion of client funds to pay himself directly, to lend himself money, to send to Atlas, or to reimburse himself for undocumented ACT expenses. All of these payments were without the knowledge or consent of his advisory clients.

The SEC is seeking an asset freeze and the appointment of a receiver to prevent any ongoing misappropriation or dissipation of assets.

SEC Charges Husband of Investment Banker With Insider Trading

The SEC charged a New York-based banking consultant with insider trading in advance of an airline merger based on confidential information he learned by eavesdropping on the phone conversations of his then-fiancee, who was an investment banker working on the deal.

The SEC’s complaint alleges that Peter Cho illegally bought Virgin America Inc. options prior to the April 4, 2016, public announcement that Alaska Air Group Inc. would acquire Virgin. Cho learned of Alaska’s efforts to purchase Virgin by listening to conversations of his now-wife, who worked on the deal from their shared apartment at night and on weekends.

According to the SEC, Cho misappropriated this information and purchased aggressive call options betting that Virgin’s stock price would rise quickly. In several instances, Cho was the only investor who purchased or held the series of options he traded, which included “out-of-the-money” options due to expire in a matter of weeks.

By purchasing these aggressive options based on material nonpublic information, Cho was able to turn an initial investment of approximately $4,000 into profits of more than $250,000 in less than one month.

Without admitting or denying the allegations in the complaint, Cho has consented to the entry of a final judgment including a permanent injunction and ordering him to return $251,386 in illegal profits with prejudgment interest plus a one-time penalty of the same amount, for a total of $532,777. The settlement is subject to court approval.

Gold CEO Charged With Misappropriating Investor Funds

The SEC charged Thomas Laws, the former CEO of Santa Fe Gold Corp., for the misappropriation of investor funds. The SEC also obtained an asset freeze against Laws.

The SEC’s complaint alleges that, from at least August 2016 through February 2018, the public mining company Santa Fe Gold transferred approximately $1.1 million in investor funds to Laws and THL Financial Services Corp., an entity controlled by Laws, for various corporate purposes, including the purchase of a silver mine and mining equipment and for third-party services.

According to the complaint, Laws misappropriated the funds and attempted to hide his theft from the company and its independent auditor by fabricating documents, including vendor invoices, agreements, bank records, and communications.

The court granted the SEC’s requests for an asset freeze, expedited discovery, the prohibition on the alteration or destruction of documents, and an accounting of investor funds and other assets. The SEC seeks disgorgement of the alleged ill-gotten gains, prejudgment interest, civil monetary penalties, an officer and director bar, and a penny stock bar. The SEC named THL as a relief defendant.

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